How to resolve AdBlock issue? Spouses and their children who receive SSI and/or MediCal needs based benefits, and are part of a divorce, may encounter complications involving the receipt and/or payment of either spousal or child support and their continued eligibility to receive needs based government benefits.
The receipt or payment of such support payments create special issues where Special Needs Trusts (”SNT”) are involved.
Often a SNT is established during the divorce proceedings to receive the support payments. Otherwise the receipt of either spousal or child support would negatively affect continued eligibility for such benefits.
A first party SNT can be established either by an authorized person – a parent, grandparent, or conservator – or by way of a court order, although no specific authority exists for a family court to issue such an order.
Any child support payments awarded to a disabled child receiving needs based government benefits will have to be irrevocably assigned to a first party SNT.
Otherwise payments will count as income to the child and negatively affect needs based government benefits.
The assignment implicates conflicting federal and state laws. These are best harmonized when both spouses consent to awarding child support payments to a first party SNT for the child’s benefit. Payments only, and not the underlying right to such support, can be assigned.
Now consider a beneficiary of an SNT who also pays spousal and/or child support.
Do the SNT distributions by the trustee count as income when the court sets the amount of support that the SNT beneficiary must pay? Furthermore, may the SNT trustee pay such support payments, on behalf of the beneficiary, to his or her spouse and or child?
A spouse's income is considered by the court when computing the amount of the support obligation that they must pay How then does being a beneficiary of an SNT impact the calculation of that obligation? This is an unsettled legal issue.
That said, given that trust distributions are fully discretionary with the SNT trustee it is unlikely that income generated inside the SNT will count unless and until actual distributions made on behalf of the beneficiary.
Next, under California law, the Trustee of an SNT can be forced to pay such obligations owed by a beneficiary to his or her ex-spouse or child because the right of an ex-spouse or child to receive support payments is safeguarded.
That said, however, in the case of a first party SNT (I.e., one created on behalf of a disabled person to receive payments or assets belonging to the beneficiary) this safeguard may conflict with the federal requirement that a first party SNT be solely for the benefit of the beneficiary and no one else.
Distributions by the trustee to pay support obligations owed to the beneficiary's spouse or child might arguabley violate this requirement and so jeopardize the SNT's validity under the very federal law that authorizes the creation of first party SNT's.
Accordingly, whenever possible, such support obligations should be paid using other income, including the SSI income, received by the beneficiary.
The trustee of the SNT can then make offsetting distributions on behalf of the beneficiary to cover unmet expenses.
The foregoing discussion shows the complications in a divorce where either spouse and/or any disabled children receive needs based government benefits. It is crucial that either the receipt or payment by a beneficiary of a SNT of any spousal or child support be implemented in a manner that preserves SSI and Medi-Cal benefits.
In such divorces, therefore, the concerned parties may wish to involve a trust law attorney knowledgeable in special needs trusts before the family law court issues an order.
Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at
