Introduction – Why Benefits Matter and How Easy It Is to Lose Them

For many individuals with disabilities, public benefits are a lifeline. Programs like Supplemental Security Income (SSI) and Medi-Cal provide vital healthcare coverage, monthly income, and support services. These benefits often make the difference between stability and hardship.

But here’s the catch: eligibility is based on strict income and asset limits. Families can unintentionally put those benefits at risk by leaving inheritances, opening accounts, or transferring property in ways that count against those limits. A single mistake—like titling assets incorrectly—can feel like tripping a hidden wire that suddenly shuts off vital support.

That’s where Special Needs Trusts (SNTs) come in. They allow families to provide financial support without disqualifying a loved one from essential benefits. Importantly, “special needs” is not limited to younger individuals with developmental or physical disabilities. It also includes elders who rely on income-based public assistance, such as SSI or Medi-Cal. Before we get to how SNTs work, let’s clear up one of the most common myths.

The Misconception – “It’s Only About Bank Accounts”

A widespread belief is that government agencies only look at money in a bank account when determining benefit eligibility. In other words, as long as you don’t have “too much” in checking or savings, you’re safe.

Unfortunately, that assumption is wrong—and dangerous. The reality is that eligibility rules count nearly all assets and income, not just what sits in a bank account. It’s like thinking only what’s visible above the waterline matters, when in fact the entire iceberg beneath is being measured.

The Reality of Asset Rules – All Assets and Income Are Counted

Needs-based benefits like SSI and categorically linked Medi-Cal have financial limits. If an individual’s countable resources exceed $2,000 (for a single person), eligibility may be lost.

What counts as a “resource”? More than most families realize:

• Checking and savings accounts
• Brokerage accounts with stocks and bonds
• Cash value in life insurance policies
• Retirement accounts
• Privately held or closely held company stock

This means it doesn’t matter if the wealth is sitting in a checking account, an investment portfolio, or shares of a family business—it can all count against eligibility.

California did remove the general asset test for standard Medi-Cal as of January 1, 2024. However, asset limits still apply when eligibility is tied to SSI. That means thousands of Californians—including elders—remain vulnerable to losing benefits if they hold assets directly.

It is important to distinguish Medi-Cal from Medicare. Medi-Cal is California’s version of Medicaid, a needs-based program with strict income and asset limits (except in some expanded coverage categories). Medicare, on the other hand, is an entitlement program tied to Social Security work credits. Unless a Medicare recipient also qualifies for special, low-income assistance programs (sometimes called “Medi-Medi” or Medicare Savings Programs), there are generally no income or resource limits for Medicare eligibility.

The bottom line: simply avoiding a savings account balance over $2,000 won’t keep benefits safe. The rules are broader and more complex than many people think—like walking a tightrope where even a small imbalance can cause a fall.

The Role of a Special Needs Trust – A Protective Container

Imagine a Special Needs Trust as a protective container—or, better yet, an umbrella. Assets placed under that umbrella are shielded from being counted as the beneficiary’s own property. Just as an umbrella keeps you dry in a storm, an SNT keeps benefits safe from the downpour of strict eligibility rules.

Here’s how it works:

• A trustee (not the person with the disability or elder receiving aid) manages the assets.
• The beneficiary cannot demand distributions directly.
• Funds can be used to enhance the person’s quality of life without interfering with benefit eligibility.

There are two main types of SNTs:

1. Third-party SNTs – Funded by someone other than the person with a disability or elder (e.g., parents leaving an inheritance). These do not require repayment to Medi-Cal upon the beneficiary’s death.
2. First-party SNTs – Funded with the beneficiary’s own assets (like a legal settlement or unexpected inheritance). These must include a “payback” provision, meaning Medi-Cal gets reimbursed for benefits provided during the person’s lifetime.

By following legal requirements, assets inside an SNT are not considered the beneficiary’s property and therefore do not disqualify them from SSI or Medi-Cal.

Example Scenario – $200,000 in Privately Traded Stock

Let’s use an example to make this clear.

Imagine a young adult with disabilities who qualifies for SSI and Medi-Cal. A well-meaning relative leaves them $200,000 in privately traded stock. The relative assumes that because the stock isn’t “cash in a bank,” it won’t affect benefits.

However, in the eyes of the law, that $200,000 stock holding is considered a resource. Suddenly, the beneficiary’s assets far exceed the $2,000 limit. SSI and Medi-Cal eligibility is lost, and medical expenses that were previously covered now come out of pocket. It’s like leaving valuables out in the rain—exposed and unprotected.

Now, imagine the same $200,000 is transferred into a Special Needs Trust. Because the trust is properly structured, the stock no longer counts as the beneficiary’s asset. Benefits remain intact. The trust can still use dividends or sell stock to cover needs that the government doesn’t cover—such as special therapies, transportation, or recreational opportunities. In this way, the trust acts like a sturdy safe, locking away the assets so they can’t harm eligibility while still making them available when needed.

This scenario highlights why SNTs are critical for Medi-Cal or SSI recipients. By contrast, a person who only receives Medicare generally would not need an SNT to protect eligibility, because Medicare has no income or resource limits unless the individual is also receiving special low-income benefits. The planning concerns vary depending on which program is applies.

That’s the power of an SNT when income-based benefits are at stake.

Practical Benefits – Peace of Mind and Long-Term Protection

Establishing a Special Needs Trust does more than preserve eligibility. It provides families with peace of mind and lasting protection. Here are some of the key advantages:

• Preserves essential benefits. Keeps access to SSI and Medi-Cal intact while allowing for supplemental financial support.
• Expands quality of life. Trust funds can pay for items and services beyond what public benefits cover, from education and travel to hobbies and adaptive equipment.
• Protects against exploitation. Because assets are managed by a trustee, they aren’t vulnerable to undue influence or financial abuse.
• Adapts to new laws. For example, starting in 2025, California law specifically allows child support payments to be directed into an SNT. (Fam. Code, §3910, subd. (b).) This ensures even court-ordered support won’t interfere with benefits.

For families, knowing that their loved one—whether a child, adult with disabilities, or elder—will be cared for long-term brings unmatched peace of mind. It’s like passing them a shield that keeps critical benefits intact long after you’re gone.

Conclusion – Protecting Benefits Is Protecting the Future

Misunderstanding asset rules can devastate a person’s eligibility for SSI or Medi-Cal. The myth that only bank balances matter puts countless families at risk. In reality, virtually all assets are counted unless they are protected through careful planning.

Special Needs Trusts act as a shield, preserving access to vital benefits while enhancing quality of life. They are one of the most important estate planning tools for families of individuals with disabilities and elders who rely on income-based assistance.

If you have a loved one with special needs, don’t leave their future to chance—or to misconceptions about bank accounts and benefits.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Every family’s situation is unique, and you should consult an attorney about your specific needs.

Attorney Recommendation (required):
For readers in Kern County, California, contact Jared R. Clemence at 610-360-9558 to schedule a consultation.