Written by attorney Joel Steven Weissler

CA Special Needs Trust Planning - Overview & First Party Trusts

Taking Care of those We Love and Taking Care of Ourselves

Special Needs Trusts (also known as Supplemental Needs Trusts) allow money or other assets to be set aside for the benefit of a disabled person without causing them to lose, or be disqualified for, government benefits. These Supplemental Needs Trusts can generally be divided into three categories: Third Party Special Needs Trusts, First Party Supplemental Needs Trusts and Pooled Trusts.

First Party Trusts are usually set up by a Parent, Grandparent or Court using funds being received by or for the disabled person. These First Party Special Needs Trusts are also known as D4(a) trusts under the Federal legislation (42 USC 1396(d)(4)(a)) authorizing their creation.

Pooled Trusts are created by groups or organizations and manage the funds of multiple individuals with special needs. Pooled Trusts are often utilized for disabled individuals who either have a very small amount of funds to preserve or who lack trustworthy family members to manage a Trust.

Third Party Trusts (third party special needs trusts) are created by anyone other than the disabled person and can only be funded with money or assets belonging to someone other than the disabled person. Third Party Trusts have the greatest flexibility and are sometimes known as Family Special Needs (or Family Supplemental Needs) Trusts.

First Party Special Needs Trusts

(Also known as Pay-Back Trusts or d(4)(A) Trusts)

The Government has been very kind in allowing parents and other third parties to put their own money into trusts to enhance the lives of disabled persons. They have not been quite as kind in allowing disabled individuals to put their own money, or funds they are receiving because of a lawsuit or injury settlement away for their own future use. The Federal legislation authorizing these types of trust is found in 42 USC 1396p (d)(4)(A). For this reason they are sometimes referred to as d(4)(a) trusts.

Three Hurdles

The first hurdle making d(4)(A) trusts more difficult is that they are only authorized for individuals under age 65. The second hurdle making first party trusts more difficult is that they must be established by a parent, grandparent, guardian or by a court. The third hurdle is that the Federal Legislation provides that after the disabled person's death anything which is left in a First Party Special Needs Trust must be paid over to the State to the extent that the State has paid medical expenses for the disabled person during their lifetime. This third hurdle is sometimes called the "Pay Back" provision.

The most common use for First Party Special Needs Trusts is to receive and protect litigation proceeds. It is also sometimes used when a disabled person directly receives an unplanned for inheritance thereby reducing the beneficiary's potential disqualification down to a single month and making the inheritance available for their supplemental or special needs throughout their lifetime.

Unfortunately, many Attorneys pursuing claims for disabled persons don't understand the enormous difference a Special Needs Trust can make in a disabled person's life. This makes it very important that disabled persons and their families be alert and bring an experienced special needs trust attorney in to help their claims advocate or litigation attorney. No disabled person should settle a claim under which they will receive compensation without consulting an attorney accustomed to dealing with public benefit and special needs issues. No disable person should allow themselves to lose benefits because of an unplanned for inheritance. Help is available.

Attorney Joel Weissler has over twenty-two years of experience in helping families prepare for and deal with life cycle events. He can be reached in his San Diego, California office at (619) 281-1888

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