Special Needs Trusts: Protecting Benefits While Still Helping a Loved One

Why a direct gift backfires

SSI generally caps countable resources at $2,000 for an individual. Medi-Cal has its own asset limits (see our 2026 Medi-Cal eligibility guide). A direct inheritance, cash gift, or personal injury settlement paid straight to the beneficiary counts as an available resource the month it’s received — often disqualifying them from benefits until the money is spent down, even if the giver’s intent was to improve their life.

First-party vs. third-party trusts

• First-party (self-settled) SNT — funded with the beneficiary’s own assets, typically a personal injury settlement or an inheritance already received in their name. California requires a Medi-Cal payback provision: on the beneficiary’s death, remaining trust funds first reimburse the state for Medi-Cal benefits paid during their life.
• Third-party SNT — funded with someone else’s money (a parent’s estate plan, a grandparent’s gift) on the beneficiary’s behalf. No Medi-Cal payback requirement, since the money was never the beneficiary’s own asset — this is why parents are generally advised to leave an inheritance to a properly drafted trust rather than directly to a disabled child.

ABLE accounts — a lighter-weight alternative for smaller amounts

For smaller sums, a California ABLE account lets a person with a qualifying disability (onset before age 26, expanding to age 46 starting in 2026 under recent federal changes) save up to the annual gift-tax exclusion amount per year without affecting SSI or Medi-Cal — with far less legal cost and complexity than a trust, though with a lower total balance cap.

When to bring in an elder-law attorney

Trust language here is unforgiving — a single incorrectly worded distribution clause can void the protection and trigger exactly the disqualification the trust was meant to prevent. This isn’t a template-form job; work with an attorney who specifically drafts special needs trusts, and loop them in before finalizing a will, settlement, or beneficiary designation that would otherwise leave money directly to the person.