“‘[S]pecial needs trusts,’ (SNT) [governed by] Probate Code sections 3600-3605, enables a disabled person to qualify for Medi-Cal benefits by sheltering money that exceeds the limit of the individual’s eligibility.” Herting v. State Dept. of Health Care Services (2015) 235 Cal.App.4th 607, 610.

“In California, Probate Code section 3605 permits a court to order the establishment of a ‘special needs trust’ for a person with a disability, but the order ‘shall include a provision that all statutory liens in favor of the State Department of Health Care Services, the State Department of State Hospitals, the State Department of Developmental Services, and any county or city and county in this state shall first be satisfied.’” Herting v. State Dept. of Health Care Services (2015) 235 Cal.App.4th 607, 613 citing Prob. Code Sec. 3604(d).

“A special needs trust restricts the trustee’s ability to use the trust assets and allows the beneficiary to maintain eligibility for certain needs-based government benefits, such as Medi-Cal.” Shewry v. Arnold (2004) 125 Cal.App.4th 186, 191.

Special Needs Trust as Settlement

“When the settlement proposes the establishment of a special needs or other trust as provided in Probate Code sections 3600 to 3612, the terms of the proposed trust must be reviewed by the Probate Department. The terms of the trust must include the provisions required in California Rules of Court, rule 7.903, and Local Rule 4.116.” L.A. County Super. Ct. R 4.115(c).

Eligibility for SNT under Probate Code 3604(b)

A special needs trust may be established and continued under this section only if the court determines all of the following:

1. That the minor or person with a disability has a disability that substantially impairs the individual's ability to provide for the individual's own care or custody and constitutes a substantial hardship;
2. That the minor or person with a disability is likely to have special needs that will not be met without the trust; and
3. That money to be paid to the trust does not exceed the amount that appears reasonably necessary to meet the special needs of the minor or person with a disability.

Notice

When seeking approval of a SNT, service must be made upon three state agencies including the Dept. of Mental Health, Dept. of Developmental Services, and Dept. of Health Care Services. (Probate Code section 3611(c).) There is no notice of hearing with proof of service in the file (being attached to any brief or separately-filed) to indicate service on the state agencies. Notice of a new proposed SNT instrument and of the new hearing date is required.

The Proposed Order

A proposed order (MC-351) must be served and lodged with the court. The order approving the SNT properly must attach a copy of the proposed SNT instrument to capture the text of the trust being approved.

When the funding of a SNT is allowed, the court order should include language requiring petitioner to file an accounting within a year and to open a separate proceeding for the trust by filing a certified copy of the settlement order establishing the trust with the Probate court. LASC Rule 4.115(e)(1). Specifically, an order establishing an SNT should include language requiring the submission of a Notice of Commencement of Proceedings for a Court Supervised Trust on LASC Form PRO 044, along with any required bond, within 60 days.

Trust Protector

A proposed special needs trust creates a "trust protector" who may with or without cause remove the court-appointed trustee, with the requirement that the court "shall" confirm that removal. C.f. CRC 7.903(c)(7). The "trust protector" is authorized to appoint a successor trustee, which replacement a court "must" confirm upon petition. Id.

The appointment of a successor "trust protector" is proposed not to be subject to court approval, but a determination of of the current "trust protector" or alternatively, by some member of the law firm advancing the petition. C.f. CRC 7.903(c)(7). The "trust protector" is also exempted from common law fiduciary liability, with the only conceivable liability being the "conclusive" establishment of an actual intent to harm the SNT beneficiary or self-dealing for personal benefit. Id.

Under the proposed special needs trust, the "trust protector" is given the unilateral right to modify the terms of the trust without court approval. C.f. CRC 7.903(c)(2). In addition to the special needs trust the receiving compensation, the proposed trust here also entitles the "trust protector" to compensated as well. Id.