Incapacity and special needs
Will an inheritance disqualify my child from SSI and Medi-Cal?
An outright gift can end SSI, and losing SSI can cost the Medi-Cal that comes with it. A trust is how the gift is made without that happening.
An outright inheritance can end SSI, and losing SSI can cost the Medi-Cal that comes with it. The gift is meant kindly and it takes away the thing the person was living on. It is one of the most avoidable outcomes in this whole area of work.
What is actually tested
SSI is resource tested, and the limit is low — two thousand dollars for an individual. An inheritance received outright pushes a recipient over it immediately, and benefits stop until it has been spent down. There are penalties for simply giving it away to fix the problem.
Medi-Cal is more complicated than it used to be. California eliminated the asset limit for most Medi-Cal programs in 2024, which genuinely changed part of this calculation. But it did not change the part that matters most here: SSI eligibility carries Medi-Cal with it for many recipients, and income rules and program-specific requirements still apply. Losing SSI can still mean losing coverage, by a different route than it used to.
If someone tells you the asset rules no longer matter, that is too simple. Ask which program, and ask what the person's eligibility actually rests on.
What a special needs trust does
It holds the gift so that the beneficiary never owns it outright. The trustee uses it to supplement what benefits provide rather than to replace it — the things public benefits do not cover, which is most of what makes a life good. Both survive.
Third party or first party
Third party. Funded with someone else's money — yours. This is the one you create in your own estate plan. It has no payback requirement: whatever remains when the beneficiary dies goes where you direct, to your other children or wherever you choose.
First party. Funded with the beneficiary's own money, typically a personal injury settlement or an inheritance that arrived outright before anyone could stop it. Subject to a state payback requirement on death, which is exactly why the third party version is worth setting up in advance. A pooled trust run by a nonprofit is often the practical answer for smaller amounts.
The mistake that is hardest to unwind
Leaving the share to a sibling with an understanding that they will look after the beneficiary. It is not enforceable. It is exposed to the sibling's divorce, their creditors and their own estate. And it puts a relationship in the position of a legal structure.
Tell the rest of the family
A well-drafted special needs trust is undone by a grandparent who leaves ten thousand dollars directly to the beneficiary in a will written years earlier. Everyone who might leave this person money needs to know to direct it to the trust instead.
Also on incapacity and special needs
- Will the cost of long-term care take the house?It can, and the decisions taken in the first months are usually the ones that matter most. This is planning rather than avoidance.
- When is a conservatorship actually necessary?Less often than families are told. It is the fallback where nothing was signed in advance, and the better answer is usually the documents that make it unnecessary.
- What happens if I become incapacitated without a power of attorney?Your family goes to court. A conservatorship is the fallback, and it is a proceeding rather than a document.