For parents of a child with special needs, estate planning carries a weight that goes beyond finances. It is about making sure that when you are no longer here, your child continues to have access to the care, support, and quality of life you have worked hard to provide.
In California, that planning requires careful attention to a specific challenge: ensuring your child has financial resources without inadvertently disqualifying them from the government benefits — such as Supplemental Security Income (SSI) and Medi-Cal — that may be essential to their long-term care.
As of January 1, 2026, this landscape has shifted in meaningful ways. The expansion of ABLE account eligibility and the return of asset limits for certain Medi-Cal programs make it more important than ever to understand how Special Needs Trusts and ABLE accounts work — separately and together.
This article explains the core planning tools available to California families, how recent changes affect existing plans, and what steps to consider now.
Why a Standard Estate Plan May Not Be Enough
Most estate plans are designed to transfer assets directly to children — either outright at a certain age or through a straightforward trust distribution. For children without disabilities, this approach works well. For children who rely on needs-based government benefits, it can create an unintended problem.
Programs such as SSI and Medi-Cal have strict limits on the assets and income a recipient may have. If a child with a disability receives funds directly — even a modest inheritance — those assets may count toward eligibility limits. This can result in a reduction or suspension of benefits until the child has spent down those funds on qualifying expenses.
The child is then left without benefits, without the resources they just received, and potentially without the continuity of care they depend on.
This is why leaving money or property directly to a child with special needs is generally not recommended. Instead, assets are typically directed into a properly structured Special Needs Trust designed to supplement — not replace — public benefits.
Important context for 2026: California temporarily eliminated asset tests for Medi-Cal between 2024 and 2025. As of January 1, 2026, asset limits have been reinstated for many long-term care programs. Plans simplified during that period should be reviewed.
Types of Special Needs Trusts in California
There are two primary types of Special Needs Trusts, each serving a distinct purpose:
Third-Party Special Needs Trust: Funded with assets belonging to someone other than the beneficiary — typically parents, grandparents, or other family members. This is the most common type established as part of a parent’s estate plan. A significant advantage: upon the beneficiary’s death, any remaining assets can pass to other family members rather than being subject to state reimbursement.
First-Party (Self-Settled) Special Needs Trust: Funded with assets that belong to the beneficiary directly — such as a personal injury settlement or an inheritance received outright before a trust was in place. In California, first-party trusts are subject to Medi-Cal reimbursement requirements, meaning the state may seek repayment for benefits provided during the beneficiary’s lifetime from any assets remaining in the trust after their death.
Understanding which type of trust applies to your situation — and drafting it correctly — is one of the most consequential decisions in special needs planning.
Choosing the Right Trustee
The trustee of a Special Needs Trust carries significant responsibility. They must manage and invest trust assets, make distributions that enhance the beneficiary’s quality of life, and do so in a way that does not inadvertently reduce government benefits. This requires not only financial competence but also a working knowledge of SSI and Medi-Cal rules, which change over time.
Families have several options:
- A trusted family member who is willing to take on the role and committed to staying informed about benefits rules
- A professional fiduciary experienced in administering special needs trusts
- A nonprofit trustee organization that specializes in this area
- A co-trustee arrangement that pairs a family member with a professional for oversight and expertise
Choosing a trustee based on family tradition rather than capability is one of the most common mistakes in special needs planning. The right person for this role is someone organized, patient, and willing to ask questions when the rules are unclear.
CalABLE Accounts: A Complementary Planning Tool
Alongside a Special Needs Trust, ABLE accounts — known as CalABLE accounts in California — offer a flexible savings option for individuals with disabilities. Established under the federal ABLE Act, these are tax-advantaged accounts that allow funds to grow and be withdrawn tax-free when used for qualifying disability-related expenses.
The 2026 Eligibility Expansion
As of January 1, 2026, the ABLE Age Adjustment Act is fully in effect. Previously, eligibility required that the qualifying disability began before age 26. Under the expanded rule, disability onset can now occur before age 46. This opens access to CalABLE accounts for millions of people who were previously excluded — including many veterans and adults with later-onset conditions such as multiple sclerosis or traumatic brain injury.
Key Features of CalABLE Accounts
- SSI protection: the first $100,000 in a CalABLE account is not counted toward the SSI resource limit, preserving benefit eligibility
- Tax-advantaged growth: earnings grow tax-free, and withdrawals are tax-free when used for Qualified Disability Expenses (QDEs), which include a broad range of education, housing, transportation, and health-related costs
- Beneficiary access: unlike a trust, the account holder can manage the account directly — using a debit card for day-to-day expenses — if they have the capacity to do so
How Special Needs Trusts and ABLE Accounts Work Together
These two tools are not interchangeable. They serve different purposes and work best when coordinated thoughtfully.
A Special Needs Trust is generally used to hold larger sums — life insurance proceeds, an inheritance, retirement assets — that require structured management and long-term protection. The trustee has oversight and discretion over distributions, which provides an important layer of protection against benefit disruption.
A CalABLE account, by contrast, allows the beneficiary more direct access to funds for everyday qualified expenses. It is particularly useful for:
- Managing smaller amounts of money with more flexibility
- Supporting financial independence for beneficiaries who are able to manage their own spending
- Covering routine expenses in a way that is administratively simpler than requesting trustee distributions
Many families use both tools together. A common approach is for the trust to periodically distribute modest amounts into the ABLE account, giving the beneficiary spending flexibility while keeping the larger pool of assets protected within the trust structure.
Trust language matters: California case law has reinforced that “special needs” in the trust context refers to the purpose of supplementing public benefits — not just medical expenses. Your trust should give the trustee broad discretion to pay for quality-of-life expenses such as travel, electronics, recreational activities, and similar items that government benefits do not cover.
What Families Should Review in 2026
Several changes effective in 2026 warrant a review of existing special needs plans. If any of the following apply to your situation, it is worth consulting with an attorney:
Review existing trusts: if your trust was drafted or simplified during 2024–2025 when California temporarily eliminated Medi-Cal asset tests, confirm it still meets current federal SNT requirements now that those limits have been reinstated
Check ABLE eligibility: if your child or family member was previously ineligible for a CalABLE account because their disability began after age 26, they may now qualify under the expanded age-46 rule
Protect your home from estate recovery: Medi-Cal estate recovery in California primarily targets assets that pass through probate. Ensure your home is held in a Living Trust or has a Transfer-on-Death deed to keep it outside the probate estate
Review trust distribution language: confirm that your trust gives the trustee broad discretion to pay for quality-of-life expenses, not just medical costs, and that this language is explicit enough to withstand scrutiny
Common Mistakes in Special Needs Planning
Even well-intentioned plans can fall short when certain details are overlooked. Some of the most common mistakes include:
- Leaving assets directly to a child with special needs in a Will or beneficiary designation
- Naming the child as a direct beneficiary of a retirement account or life insurance policy without routing funds through a trust
- Failing to update an estate plan after a diagnosis or change in the child’s circumstances
- Choosing a trustee without fully considering the knowledge and organizational demands of the role
- Using a CalABLE account and a trust without coordinating distributions between them
- Assuming that a plan drafted before 2026 still reflects current eligibility rules
Because eligibility rules are technical and subject to change, the details in both the trust document and the beneficiary designations on financial accounts matter considerably.
The Case for Planning Early
Many families begin thinking about special needs planning only when a crisis prompts it — an unexpected diagnosis, a change in benefits, or a parent’s own health concerns. But earlier planning consistently produces better outcomes.
Establishing a third-party Special Needs Trust as part of a parent’s estate plan — even before the full scope of a child’s needs is known — ensures that if something unexpected happens, assets are automatically protected rather than distributed in a way that could cause harm.
Early planning also allows families to:
- Align financial contributions from extended family members (grandparents, aunts and uncles) so that gifts go into the trust rather than directly to the child
- Coordinate the trust with life insurance planning to ensure there are adequate resources for the long term
- Establish a CalABLE account and begin building familiarity with how it works before it is urgently needed
- Give the designated trustee time to learn the role gradually rather than all at once
A well-structured plan gives parents something genuinely valuable: the confidence that their child will be cared for, and that the resources set aside for that care will actually reach them.
Minella Law Group Can Help
Our team works with California families to create Special Needs Trusts and coordinated estate plans that protect both benefits eligibility and long-term quality of life. Whether you are planning ahead or updating a plan that no longer fits your circumstances, we are here to help you navigate the details with care.
📞 Call Minella Law Group today at 619-289-7948 to schedule a confidential consultation with one of our family law specialists. We’ll listen to your concerns, assess the situation, and create a clear strategy tailored to your goals.
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Disclaimer: This article is for informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed California estate planning attorney.
Frequently asked questions
What is a special needs trust in California?
A special needs trust (also called a supplemental needs trust) is a legal arrangement that allows assets to be held for a person with disabilities without disqualifying them from needs-based government benefits such as SSI or Medi-Cal. The trust is designed to supplement — not replace — public assistance, covering expenses that those programs do not.
Will leaving money directly to my child affect their SSI or Medi-Cal?
It can. If a child with special needs receives money or assets directly, those funds may count toward eligibility limits for needs-based benefits, potentially resulting in a reduction or loss of coverage until the funds are spent down. A properly structured Special Needs Trust is designed to prevent this outcome.
What is the difference between a third-party and first-party special needs trust?
A third-party Special Needs Trust is funded with assets belonging to someone other than the beneficiary — typically parents or grandparents. Remaining assets after the beneficiary’s death can pass to other family members. A first-party trust is funded with the beneficiary’s own assets, such as a settlement, and is subject to Medi-Cal reimbursement requirements after the beneficiary’s death.
What is a CalABLE account?
A CalABLE account is a tax-advantaged savings account for eligible individuals with disabilities. Contributions grow tax-free and can be withdrawn tax-free for qualified disability expenses. Balances up to $100,000 are not counted against SSI resource limits. As of January 1, 2026, eligibility has expanded to individuals whose disability began before age 46.
When should I create a special needs trust?
As early as possible. Establishing a trust as part of your broader estate plan — even before the full extent of your child’s long-term needs is clear — ensures that assets are protected if something unexpected happens. Early planning also allows extended family members to contribute to the trust rather than giving gifts directly to the child.