Beneficiaries receiving disability income in California via Supplemental Security Income (SSI) or Medi-Cal could lose benefits if they receive an inheritance. Disability income is based on financial need. If a beneficiary receives a hefty sum, the state will see the financial need disappear.

Living trusts and testamentary trusts can withhold an inheritance from a special needs beneficiary by creating a Third Party Special Needs Trust.

Assets for the beneficiary receiving disability are held in the trust and are not calculated as assets by the state of California in determining eligibility for financial assistance.

The Third Party Special Needs trust must be managed by someone other than the beneficiary and is irrevocable once the trustors (the trust’s creators – often the parents) pass away. The special needs beneficiary does not control any of the assets during his or her lifetime.

Litigation Special Needs Trusts allow the beneficiary receiving disability income to control some of the assets but Medi-Cal can potentially recoup assets once the beneficiary passes.

Consult an attorney in California to determine which special needs trust is best for your needs.