Special Needs Trust: Definition and How It Works in California

By Eric Ridley, attorney, Ridley Law. Updated September 2026.

A special needs trust holds money and property for a person with a disability without counting against eligibility for means-tested government benefits such as SSI and Medi-Cal. The trustee pays for needs those benefit programs do not cover, rather than handing money directly to the beneficiary.

How it works in California

Ridley Law’s guide to leaving money to a child on benefits covers how to fund one of these trusts without disqualifying the beneficiary. There are two different structures, and they are not interchangeable. A third-party special needs trust holds someone else’s money, typically a parent’s estate plan, and because the funds were never the beneficiary’s own, the trust never has to repay Medi-Cal.

A first-party, or self-settled, special needs trust holds the beneficiary’s own money, such as a personal injury settlement. When a California court orders one, for example to hold a settlement for a minor or an incapacitated adult, the trust must provide that statutory liens in favor of the State Department of Health Care Services are satisfied first (Prob. Code, § 3604), and the state can make its claim when the trust ends (Prob. Code, § 3605). A first-party trust, court-ordered or not, has to repay Medi-Cal from what is left when the beneficiary dies.

Why it matters

Choosing the wrong structure, or skipping one entirely, can cut off a family member’s benefits. For example, a parent who leaves an inheritance directly to a disabled adult child, instead of into a third-party special needs trust, can cost that child both SSI and Medi-Cal until the inheritance is spent down to nothing.

Common mistakes

People sometimes assume any trust with “special needs” in its name works the same way, when the third-party and first-party versions follow different rules and have different consequences at the beneficiary’s death. Forgetting that a first-party trust must repay Medi-Cal when the beneficiary dies, while a third-party trust does not, is the mistake that surprises families the most.

Related terms

• Irrevocable Trust: a special needs trust is typically irrevocable once it is funded.
• HEMS Standard: a support standard that can count against benefits, which is why special needs trusts usually give the trustee sole discretion instead.
• Trustee: manages distributions carefully to avoid disqualifying the beneficiary.
• Spendthrift Trust: a trust that keeps a beneficiary’s interest away from most creditors until it is paid out.

Part of the California estate planning glossary. For the full treatment, see CA Special Needs Trust Guide 2026.