San Luis Obispo Special Needs Trust Attorney

When you have a child or family member with a disability, one of the scariest things you can face is the possibility that a well-meaning inheritance could cost them the government benefits they depend on. A single deposit into the wrong bank account can disqualify someone from Supplemental Security Income, Medi-Cal, In-Home Supportive Services, and other programs that pay for housing, medical care, therapy, and daily living expenses. A special needs trust is designed to prevent exactly that outcome. At the Law Offices of Andrew Cohen, we help families in San Luis Obispo and throughout California set up special needs trusts that protect their loved ones without putting their benefits at risk.

Why San Luis Obispo Families Need Special Needs Trusts

San Luis Obispo County is home to a strong network of disability services, from the Tri-Counties Regional Center to local nonprofits that support adults and children with developmental disabilities, physical disabilities, and mental health conditions. Many families here have spent years building a support system around their loved one that includes Medi-Cal coverage, SSI payments, In-Home Supportive Services, and regional center funding. All of that can disappear if a person with a disability inherits money or receives a settlement that pushes their countable assets above $2,000 for an individual.

That $2,000 threshold is not a typo. SSI and Medi-Cal have strict asset limits, and even a modest inheritance from a grandparent can trigger a loss of eligibility. The consequences go beyond losing a monthly check. Medi-Cal covers medical care, therapy, prescription drugs, and specialized services that would cost thousands of dollars a month to replace out of pocket. Losing that coverage, even temporarily, can disrupt the routines and care that a person with a disability depends on.

A special needs trust solves this problem by holding assets in a way that the government does not count against the beneficiary’s eligibility. The trust can pay for things that improve the beneficiary’s quality of life, like specialized equipment, vacations, hobbies, education, and personal care attendants, while SSI and Medi-Cal continue to cover the basics. It is one of the most important tools in estate planning for SLO families who have a member with a disability.

What Is a Special Needs Trust?

A special needs trust, sometimes called a supplemental needs trust, is a legal arrangement that holds money or property for the benefit of a person with a disability. The key word is “supplemental.” The trust is not meant to replace government benefits. It is meant to supplement them by paying for things that SSI and Medi-Cal do not cover.

The trust is managed by a trustee, who is a person or organization responsible for deciding how the trust’s money gets spent. The beneficiary, which is the person with the disability, does not own the assets in the trust and does not have direct access to the money. That separation is what keeps the trust assets from being counted as the beneficiary’s resources for purposes of benefit eligibility. As long as the trust is drafted correctly and administered properly, the beneficiary can receive distributions from the trust throughout their lifetime without losing a dollar of government support.

Special needs trusts are authorized under federal law, specifically under 42 U.S.C. Section 1396p(d)(4), and California has its own statutes that govern how they work at the state level. The rules are technical, and a trust that is not set up correctly can fail to protect benefits or create tax problems that eat into the money you set aside for your loved one. This is not a do-it-yourself project.

Types of Special Needs Trusts

There are four main types of special needs trusts, and the right one depends on where the money is coming from, who is setting up the trust, and what the beneficiary’s situation looks like.

First-party special needs trusts are funded with the beneficiary’s own money. The most common scenario is a personal injury settlement. If a person with a disability receives a lawsuit payout or an inheritance that was left to them directly rather than through a trust, a first-party trust can hold those funds without disrupting their benefits. The catch is that when the beneficiary dies, any money remaining in the trust must be used to pay back Medi-Cal for the benefits it provided during the beneficiary’s lifetime. This is called the Medi-Cal payback requirement, and it applies to all first-party trusts. The beneficiary must be under 65 when the trust is established, and the trust must be created by a parent, grandparent, legal guardian, or the court.

Third-party special needs trusts are funded with someone else’s money, typically a parent, grandparent, or other family member. This is the type most families create as part of their estate plan. You set up the trust during your lifetime or through your will, name your loved one with a disability as the beneficiary, and fund it with your own assets. The biggest advantage over a first-party trust is that there is no Medi-Cal payback requirement. When the beneficiary dies, whatever is left in the trust goes to the remainder beneficiaries you named, whether that is your other children, a charity, or anyone else you choose. There is also no age restriction on when the trust can be created.

Pooled trusts are managed by nonprofit organizations that combine the assets of many beneficiaries into a single investment pool. Each beneficiary has their own individual account within the pool, but the nonprofit handles all the investment and administrative work. Pooled trusts are a good option for beneficiaries who do not have a family member willing or able to serve as trustee, or for situations where the amount of money involved is too small to justify the cost of setting up a standalone trust. In California, several nonprofit organizations operate pooled trusts, and they charge administrative fees that vary by program. Pooled trusts can accept funds from the beneficiary’s own money (like a first-party trust) or from a third party. If funded with the beneficiary’s own money, the Medi-Cal payback requirement applies to any funds that do not stay in the pool after the beneficiary’s death.

ABLE accounts are tax-advantaged savings accounts created under the Achieving a Better Life Experience Act. While not technically a trust, ABLE accounts serve a similar purpose and are worth understanding as part of the overall picture. A person whose disability began before age 26 can open an ABLE account and save up to $100,000 without affecting SSI eligibility. The annual contribution limit for 2026 is tied to the federal gift tax exclusion. Funds in an ABLE account can be used for qualified disability expenses including housing, education, transportation, assistive technology, and job training. ABLE accounts are simpler to set up and manage than a full special needs trust, but the contribution limits mean they work best as a complement to a trust rather than a replacement for one.

What a Special Needs Trust Can and Cannot Pay For

The trustee has to be careful about what the trust money gets spent on. The general rule is that the trust should pay for things that enhance the beneficiary’s quality of life without replacing the benefits that SSI and Medi-Cal are supposed to cover.

Distributions that are generally safe include:

• Education and tutoring
• Computers, tablets, and assistive technology
• Recreation, hobbies, entertainment, and vacations
• Vehicle purchase and modifications
• Out-of-pocket medical and dental expenses not covered by Medi-Cal
• Personal care attendants and companion services
• Clothing and personal items
• Furnishings for the beneficiary’s living space
• Legal fees and professional services

The trust should generally avoid paying for food and shelter directly because those payments can reduce the beneficiary’s SSI check under what is called the In-Kind Support and Maintenance rule. If the trust pays someone’s rent, for example, SSI treats that as income to the beneficiary and reduces their monthly payment by up to one-third plus $20. That does not mean the trust can never help with housing. It just means the trustee needs to understand the trade-offs and make an informed decision about whether the reduction in SSI is worth the benefit of the housing payment.

Cash distributions directly to the beneficiary are almost always a problem. If the trust hands the beneficiary $500 in cash, that money becomes a countable asset the moment it hits their hands. The trustee should pay vendors and service providers directly on behalf of the beneficiary rather than giving money to the beneficiary to spend on their own.

How to Set Up a Special Needs Trust in California

The process starts with understanding the beneficiary’s current benefits, their disability, their living situation, and what kind of support they are likely to need over the course of their lifetime. This is more than a legal exercise. It requires thinking carefully about the beneficiary’s daily life and planning for decades into the future.

For a third-party trust, the person creating the trust (usually a parent) works with an attorney to draft the trust document. The document names the beneficiary, the trustee, any successor trustees, and the remainder beneficiaries who receive whatever is left when the trust terminates. It also spells out the trustee’s powers and duties, including how distributions should be made and what the trustee should consider before spending trust funds. Once the document is signed, the trust needs to be funded, which means transferring assets into it. Many families fund a third-party special needs trust through their will or living trust so that the money flows into the special needs trust when the parents pass away.

For a first-party trust, the process is similar but involves additional legal requirements. The trust must include specific language about the Medi-Cal payback obligation, and it must be established by a parent, grandparent, guardian, or the court rather than by the beneficiary themselves. If the money is coming from a lawsuit settlement, the court that approved the settlement may need to review and approve the trust as well.

In both cases, the trust should be drafted by an attorney who understands both California trust law and the federal benefit rules that govern SSI and Medi-Cal eligibility. A mistake in the trust language can result in the entire trust being counted as the beneficiary’s asset, which defeats the purpose of setting it up in the first place.

Choosing a Trustee: Family Member vs. Professional Fiduciary

Picking the right trustee is one of the most important decisions you will make when setting up a special needs trust. The trustee has to manage the money, make spending decisions that comply with benefit rules, keep detailed records, file tax returns for the trust, and communicate with the beneficiary and their caregivers. It is a real job, and not everyone is cut out for it.

Many families name a sibling or other relative as trustee. The advantage is that a family member knows the beneficiary personally and understands their needs, preferences, and daily routine. The downside is that serving as trustee is a long-term commitment that requires financial literacy, patience, and a willingness to learn the rules about what the trust can and cannot pay for. Family dynamics can also complicate things. If the trustee is also a remainder beneficiary, meaning they stand to inherit whatever is left in the trust when the beneficiary dies, there is an inherent conflict of interest that can create tension.

A professional fiduciary is a licensed individual or organization that manages trusts for a living. They bring expertise in trust administration, benefit rules, investments, and tax compliance. The downside is cost. Professional fiduciaries charge fees, typically a percentage of the trust’s assets each year, which can eat into smaller trusts over time. They also may not know the beneficiary personally, which means they might not fully understand what would genuinely improve the beneficiary’s life.

Some families split the difference by naming a family member and a professional co-trustee. The family member provides input on the beneficiary’s needs while the professional handles the financial and legal side. Others name a family member as sole trustee but build in a requirement that the trustee consult with a professional fiduciary or attorney before making major decisions.

Special Needs Trusts and the ABLE Act

The ABLE Act, passed by Congress in 2014, created a new option for people with disabilities to save money without losing their government benefits. California’s ABLE program, called CalABLE, lets eligible individuals open a tax-advantaged savings account that works alongside a special needs trust.

ABLE accounts have contribution limits, which means they are not a substitute for a special needs trust when significant assets are involved. But they do offer something a special needs trust cannot: the beneficiary can manage their own ABLE account and make their own spending decisions within the rules. For someone who values independence, that can be meaningful.

The two tools work well together. A special needs trust can hold the bulk of the assets and handle larger expenses, while the ABLE account gives the beneficiary direct access to a smaller pool of money for everyday spending. The trustee of a special needs trust can even make contributions to the beneficiary’s ABLE account, which gives the beneficiary more autonomy over day-to-day purchases without putting their benefits at risk. If you are setting up a special needs trust as part of your estate plan in San Luis Obispo, we will talk through whether an ABLE account makes sense as part of the overall strategy.

Why Work with the Law Offices of Andrew Cohen

Special needs trusts sit at the intersection of estate planning law, disability law, tax law, and government benefit rules. Getting one wrong can cost your family member their health coverage, their housing support, their regional center services, or their monthly income. At the Law Offices of Andrew Cohen, we work with families across San Luis Obispo County and throughout California who need to protect a loved one with a disability while preserving their access to SSI, Medi-Cal, and other programs.

We take the time to understand your family’s full picture before drafting anything. That means learning about the beneficiary’s disability, their current benefits, their daily needs, their living situation, and what their life might look like ten or twenty years from now. We draft trusts that are built to last and that give the trustee clear guidance on how to manage the money in a way that keeps benefits intact. We also coordinate the special needs trust with the rest of your estate plan, including your will and living trust, so that every piece works together and nothing falls through the cracks.

Talk to a Special Needs Trust Attorney Serving San Luis Obispo

If you have a family member with a disability, planning ahead is not optional. The stakes are too high to rely on good intentions or a generic trust document pulled from the internet. Contact the Law Offices of Andrew Cohen for a free consultation by clicking here or call 661-481-0100. We will sit down with you, understand your family’s situation, and put a plan in place that protects your loved one for the long term.