Leaving Money to a Child on Benefits | Ridley Law

What’s inside the guide

• How an outright inheritance can interrupt or end SSI and Medi-Cal for a loved one who depends on them
• What a special needs trust is built to do, and how it lets the trust hold money without the money counting against your loved one
• Why the trust has to exist and be named as the recipient before the inheritance moves, not after
• How a special needs trust fits with the rest of your estate plan, including who else is named to receive assets
• What to look for when choosing a trustee for the trust

Will my child lose SSI or Medi-Cal if I leave them money directly?

Possibly, yes. Both programs are means-tested, so eligibility depends on what the recipient owns, not just what they earn. Money or property left directly to a beneficiary on SSI or Medi-Cal counts as their own resource the moment they receive it, and that can push them over the line and suspend the benefit until the excess is spent down. A special needs trust exists specifically to hold the inheritance instead of handing it to the beneficiary outright.

What does a special needs trust actually do?

It lets someone else, the trustee, hold and manage money for your loved one’s benefit without that money being treated as theirs for eligibility purposes. The trustee pays for things that supplement, rather than duplicate, what the benefit programs already cover, and the beneficiary cannot demand a distribution on their own. That separation between ownership and benefit is what keeps the assets from counting against them.

When does the trust need to be in place?

Before the money changes hands. A special needs trust has to be named as the recipient in your will or living trust, or funded directly during your lifetime, so an inheritance flows into the trust rather than into your loved one’s own name. Naming your loved one directly on an account or in a will, even with good intentions, undoes the protection after the fact and there is no clean way to fix it once the funds have already landed in their name.

If your current estate plan leaves assets outright to a family member who relies on benefits, it is worth a second look before anything changes hands. See our estate planning page for how a special needs trust fits into the rest of your plan.

Leaving Money Without Losing Benefits

When a loved one relies on means-tested benefits, a well-meant inheritance can cancel the very support it was meant to add to. The tool that prevents it has to be built before the money moves. This guide is how the pieces fit together.

The one thing

A direct inheritance can cancel means-tested benefits the moment countable assets cross $2,000. The fix isn’t cleaning it up afterward; the money has to land somewhere other than the beneficiary’s own name. That means the trust is drafted before the inheritance moves, not after.

Start here: what means-tested actually means

Several of the programs that support a person with a disability turn on how little they own, not just how much they need. Supplemental Security Income caps countable resources at $2,000 for an individual (42 U.S.C. § 1382). Medi-Cal eligibility, In-Home Supportive Services, and the services layered on through a regional center often ride along with that eligibility. So a $100,000 gift left outright doesn’t add $100,000 of security. It knocks the person off the programs, gets spent down replacing what those programs provided, and then the services that took years to arrange have to be requested all over again. The gift meant to help ends up doing damage.

The main tool: the third-party special needs trust

This is the one most families need. You fund it with your money, a trustee you choose controls it, and it’s drafted so distributions supplement benefits rather than replace them. The trust can pay for the things benefits don’t cover, the extras that make a life fuller, without the money ever counting as the beneficiary’s resource.

The key feature is what happens at the end. Because the money was never the beneficiary’s, the state has no payback claim when the beneficiary dies. Whatever’s left goes where you direct it, to siblings or other family, not to reimburse Medi-Cal. That’s the whole reason to plan ahead instead of reacting.

The backup tool: the first-party trust, when the money’s already there

Sometimes the money is already in the beneficiary’s name: a direct inheritance that already landed, or a personal injury settlement. For that, there’s a first-party special needs trust under federal law (42 U.S.C. § 1396p(d)(4)(A)). It can hold the beneficiary’s own assets and preserve eligibility, but it comes with two strings the third-party version doesn’t have. First, it generally must be established before the beneficiary turns 65. Second, when the beneficiary dies, Medi-Cal is repaid from whatever remains before anyone else takes.

It’s a real rescue, and it’s worth doing when it’s the only option. It’s also the reason planning ahead beats cleaning up: the third-party trust owes no payback, and the first-party trust does.

The companion: ABLE accounts help, up to a point

An ABLE account lets a person with a disability hold savings in their own name without those funds counting against benefits, within limits (26 U.S.C. § 529A). The annual contribution limit is $19,000 for 2026, tied to the federal gift tax annual exclusion. For SSI resource-counting purposes, up to $100,000 in an ABLE account is excluded; CalABLE’s own total account balance cap runs higher than that, but only the first $100,000 is protected against the SSI asset test. Eligibility depends on when the disability began: under the ABLE Age Adjustment Act, the onset cutoff rose to before age 46, up from before age 26, effective January 1, 2026.

It’s a useful companion for the beneficiary’s own smaller savings and day-to-day spending. It is not a substitute for a special needs trust when there’s a real inheritance in play. Most families end up using both: the trust for the inheritance, the ABLE account for flexibility.

The hidden leak: the grandparent problem

Here’s the trap that undoes careful planning. You set up a beautiful third-party trust, and then a grandparent leaves the disabled beneficiary $30,000 outright in a separate will, or a relative’s plan divides everything per stirpes and routes a share straight into the beneficiary’s own name. One uncoordinated gift can blow up the eligibility you protected.

The fix is coordination. Every relative who might leave money to this person needs to direct their gift to the special needs trust instead of to the beneficiary directly. That’s a family conversation, not just a document. It’s worth having early, while everyone’s plans can still point to the same place.

Four ways money can reach the beneficiary

Four moves, in order

1. Inventory every path money could take. Your trust, your will, life insurance and retirement beneficiary forms, and any relative’s plan that could name this person. Anything that could drop money in their name is a risk to map.
2. Fix the beneficiary forms. Point retirement accounts and life insurance at the special needs trust, never at the beneficiary directly. A single stray form undoes the whole plan.
3. Draft the special needs trust. A third-party trust if you’re planning ahead, which is almost always the right call. Choose a trustee who can manage money and navigate benefits, or pair a family member with a professional.
4. Write the letter of intent. A plain-language note to the trustee about who your loved one is: routines, preferences, care, the things a legal document can’t capture. It’s the piece that makes the trust actually serve the person.

This is general information about California and federal benefit rules, not legal advice, and reading it doesn’t make you a client. Program limits and dollar figures above are current as of 2026; confirm current numbers before acting, since they adjust over time. Special needs planning intersects with federal tax and benefits law, so coordinate with your CPA and benefits advisor.

Sources

• 42 U.S.C. § 1382 (SSI $2,000 resource limit for an individual)
• 42 U.S.C. § 1396p(d)(4)(A) (first-party special needs trust; under-65 funding and Medi-Cal payback)
• 26 U.S.C. § 529A (ABLE accounts; $19,000 2026 annual contribution limit tied to the federal gift tax exclusion, Rev. Proc. 2025-32; $100,000 SSI resource exclusion)
• ABLE Age Adjustment Act (disability-onset eligibility cutoff raised from before age 26 to before age 46, effective January 1, 2026)
• W&I Code, § 14009.5 (Medi-Cal estate recovery context)

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