My Loved One with Disabilities Has Died. What Happens to The Funds Left Over in a Special Needs Trust in Santa Clara County, California?

A Special Needs Trust (SNT) is a complex legal tool set up on behalf of a person with special needs or disabilities. The SNT allows a beneficiary with special needs to safely take advantage of money or property in the trust without jeopardizing the ability to collect needs-based public benefits such as Supplemental Security Income (SSI) and Medi-Cal.

Loved ones often take great care when setting up a Special Needs Trust in Santa Clara County to ensure that the disabled individual has enough resources to last for a lifetime.  Yet there are times when the beneficiary of a Special Needs Trust passes away before all of the resources within the trust are used up. In such cases, it will be necessary for the trustee to deal with any remaining assets.

Will the Assets Need to Go Back to the Government?

Whether or not remaining assets in a Special Needs Trust must go back to the government to reimburse for Medi-Cal benefits that were used depends on the type of trust that was created.

In the case of a “third party” Special Needs Trust, the trust is funded with assets that do not belong to the person with special needs. They instead come from parents, grandparents, or other loved ones who either contribute inheritances to the trust or set aside money for their loved one’s future care. If such a trust is created correctly, the funds in the trust will not count as the beneficiary’s assets when applying for benefits such as SSI or Medi-Cal. As such, this trust will not need to contain a “payback provision” which requires any remaining funds to be paid back to the government when the special needs beneficiary dies.

On the other hand, if the person with special needs places his or her own money into the Special Needs Trust, (for example money that was received as part of a legal settlement) this would require the creation of a “first-party” Special Needs Trust (so-called because the assets are contributed by the person with special needs) and will need to contain a payback provision to the government to reimburse for Medi-Cal benefits that were used.

Who Inherits Assets that Do Not Need to Be Paid Back to the Government?

Any remaining assets that do not have to be paid back to the government in a Third-Party Special Needs Trust will go to residual beneficiaries. Residual beneficiaries may include surviving siblings, caregivers, or even a charitable cause. Generally, the person who creates the Special Needs Trust will decide, when the trust is created, who should inherit any remaining funds that are in the trust following the death of the beneficiary. Keep in mind that the final distribution amount will not be determined until the Trustee pays any liens, taxes, final expenses, outstanding bills owed, and administrative costs.

If you have questions about creating a Special Needs Trust in Santa Clara County, California, whether a Third-Party Special Needs Trust or a First-Party Special Needs Trust, we invite you to contact our law firm at (650) 422-3313 to schedule an appointment.