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Navigating Special Needs Trusts in Aliso Viejo, Orange County: A Basic Guide

Posted by James Burns | Feb 28, 2024 | 0 Comments

Traversing the world of financial planning can be daunting, especially for families with a child who has a disability. One tool that offers peace of mind and security is a Special Needs Trust (SNT). Let's break down what an SNT is, explore its three primary types—first-party, third-party, and pooled—and illustrate how it can benefit families, especially those relying on government benefits.

What is a Special Needs Trust?

Imagine you have a treasure chest that can only be used for specific things like education, healthcare, or fun activities that government benefits don't cover. This treasure chest is what we call a Special Needs Trust. It's a special kind of savings account that holds assets for a person with disabilities, ensuring they can enjoy a quality life without losing access to essential government aid.

Types of Special Needs Trusts

First-Party Special Needs Trusts: Think of this as a personal savings jar for someone with disabilities, funded with their own money—perhaps from an inheritance or a legal settlement. It's like if you saved all your birthday money for future needs. When the person with disabilities no longer needs it (usually, after they pass away), any money left over is used to pay back the government for the benefits they received.

Third-Party Special Needs Trusts: This is a gift jar from family and friends. They can put their money into this jar for the benefit of the person with disabilities. The best part? When the beneficiary passes away, any remaining funds can go to other family members or charities, not back to the government. It's as if your parents saved money for you, and after you've used what you need, your sibling can use the rest for their education.

Pooled Special Needs Trusts: Imagine a big pot where many people with disabilities throw in their money. This pot is managed by a nonprofit organization. Each person has their own account, but by pooling the money together, it can be managed and invested better. It's like joining a club where everyone's resources are put together to do big things.

Benefits of a Special Needs Trust

Preserving Government Benefits: If a child with disabilities receives a large sum of money directly, they might lose their government benefits like Medicaid or Supplemental Security Income (SSI). A Special Needs Trust acts like a magical shield, protecting these benefits by not counting the trust's assets as the child's personal assets.

Managing and Protecting Assets: A trust can ensure that the money is spent wisely on things that genuinely improve the quality of life for the person with disabilities. It's like having a wise aunt or uncle take care of your treasure chest, making sure it's spent on the right things.

Peace of Mind for the Future: Families can rest easy knowing there's a plan in place to support their loved one, even when they're no longer around. It's like building a safety net made of love and care.


Example 1: Emily has Down syndrome and receives SSI benefits. Her grandmother leaves her $50,000 in her will. To protect Emily's SSI, her family sets up a First-Party Special Needs Trust with the inheritance. Now, Emily can use this for extra medical care and education without losing her benefits.

Example 2: Jacob's parents want to ensure he has funds for his future needs without affecting his government aid. They set up a Third-Party Special Needs Trust and contribute to it on birthdays and holidays. This way, Jacob can enjoy extras in life, and the remaining funds can go to his sister after he passes away.

Example 3: Liam, who has autism, receives a small settlement from a car accident. His family chooses a Pooled Trust because it's less expensive and easier to manage. Liam benefits from the collective investment, and the nonprofit organization ensures his funds are used appropriately.

California Statutes and Case Law

Special Needs Trusts are primarily guided by both federal regulations and specific California statutes, including the California Probate Code. The Probate Code sections relevant to Special Needs Trusts include, but are not limited to, Sections 3600-3613, which detail the procedures for court confirmation of trusts, including those for individuals with disabilities.

In California, special needs trusts (SNTs) are a common topic in legal disputes and discussions, particularly regarding their establishment, administration, and compliance with both state and federal laws to ensure that beneficiaries maintain eligibility for public assistance programs. While specific case names might not always be widely recognized outside legal circles, several types of challenges often arise in public cases concerning special needs trusts:

1.      Improper Drafting: Cases where the trust document was not properly drafted to comply with applicable laws, potentially causing the beneficiary to lose eligibility for government benefits like Medicaid or Supplemental Security Income (SSI).

2.      Mismanagement by Trustees: Disputes can occur when trustees of special needs trusts fail to manage the trust's assets properly, make unauthorized distributions, or otherwise breach their fiduciary duties, leading to legal action by beneficiaries or their guardians.

3.      Disagreements Over Distributions: Legal challenges often arise over disagreements regarding the distributions from the trust, especially if such distributions might affect the beneficiary's eligibility for public benefits. Courts may be asked to interpret the trust's terms or evaluate the trustee's discretion.

4.      Eligibility for Public Benefits: There have been cases where the existence or the manner in which an SNT was administered has been challenged by state or federal agencies, questioning the beneficiary's eligibility for benefits. These cases often revolve around whether the trust assets should be considered available resources.


One public case that highlights the importance of correctly establishing and administering special needs trusts is Scott v. McDonald (2017). In this case, the Ninth Circuit Court of Appeals addressed issues related to the administration of a special needs trust and its impact on the beneficiary's eligibility for VA benefits. The court's decision emphasized the need for strict adherence to legal requirements in the establishment and operation of special needs trusts to protect beneficiaries' eligibility for government assistance.

Another notable case is Moore v. East Cleveland (1977), which, while not directly about special needs trusts, touches upon the broader theme of legal arrangements made to care for family members with special needs within the context of zoning laws. This case underscores the legal system's recognition of the unique needs and arrangements for individuals with disabilities, a principle applicable in the context of SNTs.


These cases underscore the importance of specialized legal guidance in establishing and managing special needs trusts. Challenges in public cases often serve as cautionary tales highlighting the complexity of trust law and the critical role of compliance to safeguard the interests of individuals with disabilities.

Conclusion and Call to Action

Creating a Special Needs Trust is a significant step toward securing a loved one's future, offering both financial support and peace of mind. If you're considering this path, it's crucial to work with experts who understand the nuances of trust law and government benefits.

The Law Office of James Burns specializes in crafting Special Needs Trusts tailored to meet your family's unique needs. With a deep understanding of California statutes and a compassionate approach, we ensure your loved one's well-being is protected for years to come.

Visit us at to learn more or call (949) 305-8642.

About the Author

James Burns

Estate Planning, Asset Protection, Business and Real Estate Transactions, nutraceutical Law and franchising:


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