Q: Can a 1st or 3rd party Special Needs Trust be used in CA to shelter proceeds of litigation payable to SSI beneficiary?
Daughter is on SSI, requests mother to be trustee and make new SNT for litigation proceeds resulting from her deceased father's inheritance litigation. Litigation atty claims SNT would be fraud, suggests use of an ABLE acct, but proceeds will be ~$50-60k.
Daughter's live-in lifelong boyfriend is alcoholic; need to protect assets from his influence, as she is dependent on him for everything and subject to his influence and financial abuse. Can I use a 1st party SNT, or is there a better type of trust? ***Can I design it to protect from his influence by eliminating allowed categories that he would push her to use, such as "recreation over $25" and "auto repairs" (she doesn't drive), or whatever, without her approval? Or does she have a right to input on the design of her trust?
Boyfriend works, but is angry he's not getting a cut of her father's litigation payout cause "he said I should enjoy it too." He has not taken good care of my daughter; they live in needless poverty.
A:
Your question of course just raises more issues.
You can certainly establish a Special Needs Trust for your daughter if she is disabled and on SSI. The whole purpose of
SNTs is to shield assets from someone on SSI or other government programs from being disqualified. They are certainly not fraud and are allowed under 42 USC section 1396(p).
The problem is that in order to qualify, the money can only be used for certain things, mostly NOT food or lodging, taxes, restaurants, utilities, etc.; no cash. This makes the Trust tedious to administer. After your passing, you will need someone very understanding to step into that role for you.
You could make your SNT more limited than the rules require and add whatever you think will keep your daughter on the straight and narrow path. That of course just raises the administrative burden on your successor (the poor soul!).
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