TL;DR
You can leave money to a child or grandchild with a disability in California in a way that gives them more options for a full life. A third-party special needs trust holds money from you and your family, and a trustee you choose can use it for them throughout their life. Money held this way generally does not count against needs-based benefits like SSI and Medi-Cal, so it can add to what those programs provide. The key step is naming the trust, not your child or grandchild, in your living trust and on your accounts and life insurance.
You picture your child or grandchild years from now, spending time with family and friends and enjoying the things they love. You want what you leave to make more of that life possible, but money left in their name could affect the benefits they rely on. A third-party special needs trust holds the money for your child or grandchild instead of putting it in their name. It can pay for the life you want for them while generally not counting against benefits like SSI and Medi-Cal.
You want the best life possible for them, not just the basics. The therapy the benefits will not cover. The classes, the trip with the family, the friends and faith community that keep them connected, the caregiver who knows how to reach them on a hard day. And you want that help to keep coming long after you are gone.
To give your child or grandchild more choices, we bring together three parts of your special needs plan:
The right people, with the authority to act.
The right resources, coordinated so they reach the plan.
The right instructions, written down for the people who step in.
All centered on the life of your child or grandchild.
On this page
- Why a gift or inheritance can affect benefits
- What a third-party special needs trust is
- Why a special needs trust is about options, not just benefits
- How to leave money to the trust instead of to your child or grandchild
- How grandparents can leave money for a grandchild with a disability
- Who should be the trustee of a special needs trust
- How a special needs trust compares with a direct gift or an ABLE account
- A good first step
Why can a gift or inheritance affect your child’s or grandchild’s benefits?
Needs-based programs like SSI and Medi-Cal look at both the income your child or grandchild receives and the assets they own, and the limits are low. A gift or an inheritance that lands in your child’s or grandchild’s own name, such as a birthday check, a share of your living trust, or a life insurance payout that names them, can reduce those benefits or end them.
You can still help. The help just needs to arrive the right way, through a special needs trust, so it adds to their life instead of replacing what their benefits already provide.
What is a third-party special needs trust?
A third-party special needs trust lets you set aside resources for the life you want for your child or grandchild. At the same time, it generally does not count against the public benefits they may also rely on.
“Third-party” means the money comes from someone other than your child or grandchild: you, a grandparent, an aunt or uncle, a family friend. Your child or grandchild is the beneficiary. A trustee you choose manages the money and decides how to use it for them.
Your child or grandchild cannot take the money out, end the trust, or direct the trustee to spend it on their own day-to-day support. That is what keeps the trust from counting as theirs for SSI. A properly drafted third-party trust generally is not subject to Medi-Cal payback. Whatever is left when your child or grandchild passes can go to the people or charities you choose.
The trust can be its own document signed now, or it can be written into your living trust. When a child or grandchild already receives SSI or Medi-Cal, or is likely to need them, we generally recommend a separate trust signed now, so the whole family has one trust to leave gifts to.
Why is a special needs trust about options, not just benefits?
A special needs trust is not only about keeping benefits. It is about giving your child or grandchild options, because no one knows today what their needs will be in ten or thirty years.
Benefits like SSI and Medi-Cal can cover the basics. The trust is there for what makes life fuller: therapies and experiences, travel, time with friends and family, and support for their faith and community life. Sometimes the best choice is a payment that lowers a benefit. If the trust allows it, a trustee may decide that a safe, stable home is worth a smaller SSI check, because of the life it makes possible.
That is why the trust is one piece of a bigger plan: the right people, the right resources, and the right instructions, all centered on your child’s life. The trust is the tool. The goal is the best life possible for your child or grandchild, with the people they love around them.
At your Initial Planning Session, we talk about the life you want for your child or grandchild and the people you trust. You leave knowing what we recommend and what comes next. Schedule an Initial Planning Session or call (949) 718-0420.
How do you leave money to the trust instead of to your child or grandchild?
You leave it to the trust, not to your child or grandchild, and we help you coordinate your living trust and your beneficiary forms so each gift reaches the trust. A trust can be carefully drafted and still fail to accomplish its purpose if the bank and investment accounts, life insurance, and retirement beneficiary designations are not coordinated to fund it.
Here is what we review with you so gifts reach the special needs trust:
- Your living trust. The share for your child or grandchild goes to the special needs trust, not to them. A will can do the same, but a will generally means probate first.
- Life insurance. Name the trust as the beneficiary, not your child or grandchild.
- Bank and investment accounts with a payable-on-death or transfer-on-death beneficiary. Name the trust there too.
- Retirement accounts. These take extra care. How a trust is named on an IRA or 401(k) can affect both income taxes and benefits, so we design this piece with you.
This step matters because life insurance and accounts with a named beneficiary pass by the beneficiary form you signed with the company, not by your living trust. A policy that still names your child can pay the money straight to them, even if your trust says something different.
When each account names the trust, your child or grandchild receives the help you intended, through the person you chose.
How can grandparents leave money for a grandchild with a disability?
Grandparents usually have two good paths. Both keep the money out of your grandchild’s own name. Which one fits depends on the amount and on your family.
- Leave it to your grandchild’s special needs trust. Your living trust can name the trustee of that trust to receive your gift. The money goes straight to your grandchild’s support, under the trust’s instructions and the trustee’s care. The trust then becomes its own account to manage, with records and often its own tax returns each year.
- Leave it to your grandchild’s parents. This is simpler, and it gives the parents room to use the money for the whole family. They can later leave it to the special needs trust in their own plan. The tradeoff is that the money becomes theirs. It can be reached by their creditors, and it reaches your grandchild only if their plan says so.
If you are a parent, this is the conversation to have with your own parents, brothers, and sisters before they update their plans. One clear family plan helps everyone’s gifts reach your child the way you all intend.
Gifts during life follow the same idea. Money added directly to the trust generally does not count as your grandchild’s income. A check written to your grandchild generally does.
Who should be the trustee of a special needs trust?
Choose someone who will take the job seriously and who knows your child or grandchild well, or will work closely with someone who does. The trustee turns the money you set aside into their actual life, sometimes for decades.
A trustee also protects your child or grandchild. Many people with disabilities are vulnerable to people who would take advantage of them, or would find a large sum hard to manage on their own. The trustee you choose oversees the money, so it is spent wisely, kept out of reach of anyone who would misuse it, and used the way you and your family intended.
The job asks for two things. One is careful money management and an understanding of how distributions can affect benefits. The other is knowing what your child or grandchild needs, enjoys, and hopes for. A good trustee brings in an accountant, an investment manager, or a special needs attorney when a task calls for it.
Your child or grandchild should not serve as trustee or be able to direct how the money is spent, because that control can make the trust count as theirs. Many families name a parent first and then a brother or sister, a trusted friend, or a professional. Some pair a professional with a relative who speaks for what your child needs. A brother or sister who will also inherit what is left often serves best alongside someone else. Name backups too, since this role can outlast the first trustee.
Then write down what the trustee needs to know. A Memo of Intent, also called a Letter of Intent, records the routines that make a day work, the people who matter, the medical history, and your hopes. A trust can manage money. It cannot explain who your child or grandchild is, and the people who step in after you will need both.
If your child is approaching 18, the trustee is only part of the picture. Someone may also need legal authority to help with medical and personal decisions. Our guide to a limited conservatorship when your child turns 18 walks through the choices, from supported decision-making to a limited conservatorship.
How does a special needs trust compare with a direct gift or an ABLE account?
A third-party special needs trust is usually the main home for family money that is meant to last. An ABLE account can work alongside it. A direct gift is the one that can cause problems with benefits.
| Direct gift or inheritance | Third-party special needs trust | ABLE account | |
|---|---|---|---|
| Who owns the money | Your child or grandchild | The trust, managed by the trustee you choose | Your child or grandchild |
| Effect on SSI | Generally counts as income the month it arrives, and what is left counts toward the $2,000 limit | Generally does not count when properly drafted and managed | The first $100,000 generally does not count |
| Who can add money | Anyone | Anyone you choose: parents, grandparents, relatives | Anyone, generally up to $20,000 a year from all sources in 2026 |
| Who qualifies | Anyone | A person with a disability you want to provide for | A person whose disability began before age 46 and who meets the disability rules |
| What happens to what is left at death | It belongs to your child’s or grandchild’s estate | It goes to the people or charities you choose, generally with no Medi-Cal payback | Medi-Cal generally will not file a claim against a CalABLE account |
ABLE and a special needs trust are not either-or. Many families use both: the trust holds the larger, long-term money, and the ABLE account gives your child or grandchild some spending they control themselves, within their abilities and with guidance. Which mix fits depends on your family and your numbers.
For a fuller picture of how the trust fits into a whole plan, our guide to special needs trusts in California covers the people, resources, and instructions in more depth.
What is a good first step?
You do not need every answer before you begin. Start with one question: what would a good life look like for your child or grandchild ten years from now? Who is around them, what do they enjoy, and what would you never want them to go without?
That is where our special needs planning starts. At your Initial Planning Session, we talk about the life you want for them and the people you trust, then design the plan around it, usually built on a third-party special needs trust. Before the session, you fill out a questionnaire about your family so the meeting can focus on your goals. You leave knowing what we recommend and what comes next. Schedule an Initial Planning Session or call (949) 718-0420.
Laura Meier, Esq., Founder, Meier Law Firm · Newport Beach, California · Last reviewed November 2026
The law behind this guide: 20 C.F.R. sections 416.1121, 416.1130, 416.1201, 416.1205 and 416.1207; Social Security POMS SI 01120.200 and SI 01130.740; 42 U.S.C. section 1396p(d); 26 U.S.C. section 529A; 22 Cal. Code Regs. section 50489.5; California Probate Code sections 5000, 6300 and 15200; Welfare and Institutions Code section 14005.62.
Frequently Asked Questions
A third-party special needs trust is a trust funded with money from someone other than the person with a disability, such as a parent, grandparent, or other relative. A trustee manages the money and uses it for the person's benefit. The person cannot take the money out or direct it for their own support. So a properly drafted trust generally does not count against SSI, and it generally has no Medi-Cal payback.
Yes. Grandparents can name the special needs trust in their living trust, and on life insurance and other accounts, so the gift never lands in the grandchild's name. Another path is to leave the gift to the grandchild's parents, which is simpler but makes the money theirs, and it reaches the grandchild only if the parents' own plan says so. Which fits depends on the amount and the family.
It can. An inheritance left directly to your child generally counts as income in the month it arrives, and whatever is left the next month generally counts toward SSI's $2,000 resource limit. That can reduce or stop SSI until the money is spent down. Leaving the inheritance to a third-party special needs trust instead generally keeps it from counting as your child's.
Generally, no. The payback rule applies to trusts funded with the beneficiary's own money, such as a settlement or an inheritance already paid to them. A properly drafted third-party special needs trust, funded with family money, generally is not subject to Medi-Cal payback. What is left when your child or grandchild passes can go to the people or charities you choose.
Name the special needs trust. Life insurance and most accounts pass by the beneficiary form you signed with the company, not by your will or trust. A policy that names your child can pay the money straight to them, even if your trust says something different. Retirement accounts also take extra care, because how a trust is named on them can affect income taxes and benefits.
They do different jobs, and many families use both. An ABLE account belongs to your child or grandchild, and yearly deposits are capped. Medi-Cal generally will not file a claim against a CalABLE account. A third-party special needs trust has no such yearly cap, is managed by a trustee you choose, and what is left can go to the people you choose. The trust usually holds the larger, long-term money.
Choose someone who will take the job seriously and who knows your child or grandchild well, or will work closely with someone who does. Many families name a parent first, then a brother or sister, a trusted friend, or a professional, with backups. Your child or grandchild should not serve as trustee or be able to direct how the money is spent, because that can make the trust count as theirs.
Money that already belongs to your child, such as a settlement or an inheritance already paid to them, needs a different kind of trust, often called a first-party special needs trust, or a pooled trust. Those have their own rules, which can include repaying Medi-Cal after your child's death. This guide covers money from you and your family. If money is already in your child's name, talk with us about the right next step.
It can. Some Medi-Cal programs for people with disabilities count the assets a person owns, and California is changing those limits. Money left directly to your child could count against them. Leaving it to a third-party special needs trust instead generally keeps it from counting as your child's. Because the rules differ by program, we look at your child's benefits when we design the plan.
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One conversation, at whatever pace your family needs. We will help you understand which path you are on, what the deadlines are, and what does not need to be rushed.
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