# Special Needs Trust: Definition and How It Works in California

> A special needs trust holds money for a person with a disability without affecting SSI or Medi-Cal.

Source: https://ridleylawoffices.com/estate-planning-glossary-california/special-needs-trust/

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](https://ridleylawoffices.com/guides/special-needs/) 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](https://ridleylawoffices.com/estate-planning-glossary-california/irrevocable-trust/): a special needs trust is typically irrevocable once it is funded.
- [HEMS Standard](https://ridleylawoffices.com/estate-planning-glossary-california/hems-standard/): a support standard that can count against benefits, which is why special needs trusts usually give the trustee sole discretion instead.
- [Trustee](https://ridleylawoffices.com/estate-planning-glossary-california/trustee/): manages distributions carefully to avoid disqualifying the beneficiary.
- [Spendthrift Trust](https://ridleylawoffices.com/estate-planning-glossary-california/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](https://ridleylawoffices.com/estate-planning-glossary-california/). For the full treatment, see [CA Special Needs Trust Guide 2026](https://ridleylawoffices.com/special-needs-trust-guide-california-2026/).