Episode Summary

In this episode of Estate Planning: Beyond the Binder, Brian Chew, Managing Partner of OC Wills and Trusts, discusses how families can plan for children or loved ones with special needs. He explains how a properly designed special needs trust allows families to provide financial support without disqualifying their loved one from essential government benefits such as SSI and Medi-Cal. Brian also covers the differences between first-party and third-party special needs trusts, common mistakes families make, and the critical importance of choosing the right trustee.

What You Will Learn in This Episode

  • What a special needs trust is and how it protects government benefits
  • The difference between first-party and third-party special needs trusts
  • Why advance planning avoids Medi-Cal “payback” provisions
  • How funds in a special needs trust can be used to improve quality of life
  • The challenges of selecting the right trustee and why it matters
  • When to set up a standalone special needs trust versus adding a trust provision
  • How extended family members (grandparents, aunts, uncles) can contribute without jeopardizing benefits
  • Why logistics and care planning are just as important as financial planning

Key Timestamps

01:20 – What a special needs trust is and how it works
04:45 – Difference between third-party and first-party special needs trusts
07:30 – How trust funds can be used without affecting SSI or Medi-Cal
10:15 – The biggest challenge: choosing the right trustee
13:40 – How other relatives can contribute safely to a special needs trust
15:20 – Why planning ahead prevents Medi-Cal payback
17:10 – Advice for families feeling overwhelmed by the process

About the Show

Estate Planning: Beyond the Binder is a podcast dedicated to simplifying estate planning for families in California. Featuring attorney Brian Chew, managing partner at OC Wills and Trusts, the show provides expert insights into trusts, wills, and asset protection strategies. Through clear explanations and practical advice, the podcast empowers listeners to secure their family’s financial future and build lasting legacies.

Planning for a Loved One with Special Needs: How Trusts Protect Benefits and Secure Their Future

Families with children or loved ones who have special needs face unique estate planning challenges. Without the right plan in place, an inheritance or financial gift could unintentionally disqualify a loved one from essential government benefits such as SSI or Medi-Cal. Brian Chew, Managing Partner at OC Wills and Trusts, shares how special needs trusts provide financial security while preserving critical benefits.

What Is a Special Needs Trust?

A special needs trust is designed for individuals who, due to disability, may not be able to work or earn a sustainable living. These individuals often qualify for government benefits like SSI and Medi-Cal, which require that personal assets remain below $2,000. If a parent or family member leaves money directly to a loved one with special needs, that inheritance can push them over the limit and disqualify them from receiving benefits.

A special needs trust solves this problem by holding assets on behalf of the beneficiary. The funds are managed by a trustee and used to support the individual without counting against their eligibility.

First-Party vs. Third-Party Special Needs Trusts

There are two main types of special needs trusts:

  • Third-Party Special Needs Trusts – Typically created by parents or relatives within their own estate plan. Assets are set aside in the trust for the benefit of the special needs child, but the money never legally belongs to the child. This allows the trust to continue providing support without triggering government payback provisions.

  • First-Party Special Needs Trusts – Used when the funds already belong to the individual, such as a settlement or inheritance received without prior planning. In this case, the trust preserves benefits during the individual’s lifetime, but upon their passing, remaining funds must first be used to reimburse Medi-Cal or Medicaid before passing to heirs.

Planning ahead allows families to create third-party trusts, giving them more control over how leftover assets are distributed.

What Can a Special Needs Trust Pay For?

Funds in a special needs trust cannot be handed directly to the beneficiary. Instead, the trustee manages the money and uses it to supplement government benefits. This may include:

  • Travel and companion expenses

  • Furniture, electronics, or personal items

  • Educational programs and therapies

  • Transportation, including vehicles held in the trust’s name

The main restriction is food and housing expenses, which can reduce SSI benefits. Still, nearly everything else that improves quality of life can be covered.

The Importance of Choosing the Right Trustee

Selecting a trustee is one of the most challenging parts of special needs planning. Unlike a typical trust for minor children that ends when they reach adulthood, a special needs trust often lasts for the lifetime of the beneficiary. Trustees must manage finances responsibly while also coordinating care and logistics.

Parents should carefully consider whether a family member, corporate trustee, or professional fiduciary is best suited for this long-term responsibility.

When Should Families Create a Special Needs Trust?

The best time to establish a special needs trust is before assets are transferred to the child. Parents can include a special needs provision in their own revocable living trust or create a standalone trust if extended family members, such as grandparents or aunts and uncles, also plan to contribute.

Setting up the trust in advance ensures that gifts, inheritances, or settlements go directly into the trust rather than disqualifying the individual from benefits.

Common Mistakes Families Make

One of the biggest mistakes families make is failing to plan ahead, which forces the use of a first-party trust and ultimately risks losing assets to state recovery. Another common issue is assuming a relative can easily manage the trust without understanding the complexity and lifelong nature of the responsibility.

Careful planning, open communication, and professional guidance are key to avoiding these pitfalls.

Taking the First Step

For families who feel overwhelmed, Brian Chew emphasizes that the legal process of setting up the trust is straightforward—the harder part is deciding who will be in charge. Parents should focus on the core questions: Who do you love? Who do you trust? And how much do you trust them? Once those decisions are made, the rest of the planning can be structured to protect both assets and benefits.

Institutions such as banks and private fiduciaries are also available to serve as trustees when appropriate.

Estate planning for special needs requires thoughtful preparation, but the reward is peace of mind. With a properly structured trust, families can ensure their loved one is cared for, financially secure, and still eligible for vital government assistance.

To learn more, visit OC Wills and Trusts or schedule a consultation with Brian Chew and his team.