California Special Needs Trust Rules (2026) | Complete State Guide

2026 Alert: California reinstated Medi-Cal asset limits on January 1, 2026 — $130,000 for an individual, $195,000 for a couple. Assets were temporarily uncapped during 2024–2025. If you saved money during that window, you need to shelter it before your next Medi-Cal renewal. A properly structured special needs trust protects those assets.

1. 1. California taxes trust earnings at up to 13.3% — but the real impact depends on your trust’s size.
   Interest, dividends, and capital gains inside the trust are subject to California income tax on top of federal tax. The top rate of 13.3% only applies to income above $1 million — most family-sized trusts ($200K–$500K in assets) generate far less and face effective state rates in the 1–4% range. That still adds up over time, and your trustee should manage investments with California’s tax bite in mind — municipal bonds, strategic distributions, and timing of capital gains all matter. Don’t let the headline rate scare you away from setting up the trust — the tax cost is real but manageable, and it’s a fraction of what your family could lose without one.
2. 2. Medi-Cal asset limits are back — $130,000 as of January 2026.
   California temporarily eliminated asset testing in 2024–2025. That’s over. If your loved one has more than $130,000 in countable assets, they could lose Medi-Cal at their next renewal. Assets inside a properly structured SNT don’t count toward this limit. Neither do CalABLE accounts.
3. 3. Higher income doesn’t disqualify you from Medi-Cal — but you’ll pay a share of cost.
   California doesn’t cut off Medi-Cal if your income is too high. Instead, if income exceeds the limit (about $1,800/month for an individual in 2026), you pay a monthly “share of cost” — think of it like a deductible. You still get coverage. This means you don’t need a separate Qualified Income Trust (QIT) like families in Texas, Georgia, or Virginia do — which simplifies planning and reduces attorney costs.
4. 4. First-party trusts require court approval — plan for extra time and cost.
   If the trust is funded with your child’s own money (from a settlement, inheritance, or back pay), California requires a judge to approve it under Probate Code 3604. That means a court petition, a hearing, and 6–12 weeks of waiting. Budget an extra $3,000–$10,000 in legal fees beyond the trust drafting itself. Third-party trusts don’t require this.
5. 5. Medi-Cal estate recovery is limited (since 2017) — but the rules depend on which type of trust you have.
   (For third-party SNTs) — Before 2017, California’s estate recovery program could reach assets in living trusts, joint accounts, everything. SB 833 changed that. Now recovery is limited to assets that pass through formal probate. A properly structured third-party SNT is not subject to estate recovery.
   
   (For first-party SNTs) — Different rule. Because this trust was funded with your family member’s own money, federal law (42 USC §1396p) requires that any funds left in the trust when they pass away must first reimburse Medi-Cal for benefits paid during their lifetime. This isn’t estate recovery — it’s a payback clause built into the trust itself. Whatever remains after Medi-Cal is repaid goes to the family. This is the tradeoff for protecting benefits during your family member’s life.
6. 6. CalABLE accounts don’t pay Medi-Cal back at death. (For first-party SNTs)
   Under SB 218, California prohibits Medi-Cal from recovering funds in a CalABLE account after the beneficiary’s death. Remaining funds pass to your family, not to the state. Your attorney should be moving money from a first-party SNT into CalABLE (up to $20,000/year) to shift assets from payback-exposed to payback-free. This is one of the most powerful planning techniques available in California.
7. 7. Community property rules mean your spouse’s assets matter.
   California is a community property state. Everything you and your spouse earned during your marriage is presumed to be owned 50/50 — even if it’s only in one person’s name. When funding a trust, your attorney needs to determine which assets are community property and which are separate. Getting this wrong can invalidate the trust or create Medi-Cal eligibility problems.
8. 8. The Lanterman Act guarantees your child’s services — no waitlist.
   Under the Lanterman Act, California guarantees services for people with developmental disabilities — it’s a legal entitlement, not a budget-dependent program. Through 21 Regional Centers statewide, roughly 527,000 Californians receive services, and there’s no waitlist for the main DD waiver. Your SNT supplements what the Regional Center provides: vacations, electronics, private therapy, recreation. Contact your local Regional Center to get started.
9. 9. The trust can pay for groceries without reducing your child’s SSI.
   This changed in October 2024. Before that, buying food with trust money counted as income and reduced the SSI check. It doesn’t anymore. This is a meaningful quality-of-life improvement for families managing trust distributions.
10. 10. California just implemented a 30-month look-back period — the first in state history.
    For decades, California had no look-back at all. Starting January 2026, if your loved one applies for nursing facility Medi-Cal, the state will review the last 30 months of asset transfers. The good news: this only applies to nursing facility care — not community-based Medi-Cal, which is what most people with disabilities use for day-to-day services. If your child lives at home or in a group home and receives Medi-Cal through SSI or a waiver, this look-back does not apply to them. The look-back window is 30 months (not the 60 months used by most other states), and transfers made during 2024–2025 are explicitly exempt.
11. 11. The person managing the trust (the “trustee”) has to account for every dollar — no matter what type of trust you set up.
    Whether you created a third-party trust (funded with your money) or your child has a first-party trust (funded with theirs), California law (Cal. Prob. Code § 16062) gives your family the right to request a full accounting of how trust money is being spent. This isn’t optional — it’s the law. If a bank, attorney, or family member is serving as trustee and won’t show you where the money is going, that’s a red flag.

From my 15+ years helping families (including my own):

1. Leaving money directly to your disabled child. A well-meaning grandparent leaves $50,000 in a will to your child — and destroys their SSI and Medi-Cal. Every dollar meant for your child needs to go through the trust, not to them.
2. Ignoring community property when funding the trust. In California, your spouse owns half of everything earned during the marriage. If you try to fund a first-party SNT with community assets without a proper transmutation agreement, you could invalidate the trust or create Medi-Cal eligibility problems. Your attorney must sort out which assets are community and which are separate before anything goes into the trust.
3. Assuming the no-asset-test era will continue. During 2024–2025, California temporarily eliminated Medi-Cal asset limits. Families relaxed. Some saved money in regular bank accounts. That’s over — the $130,000 limit is back. If you accumulated savings during that window and haven’t sheltered them in an SNT or CalABLE account, do it before your next renewal.
4. Giving your child a debit card linked to the trust account. The moment your child can swipe that card, the entire trust balance becomes a countable asset. Benefits gone. The trustee must control distributions.
5. Not moving money from a first-party SNT into CalABLE. If the trust was funded with your child’s own money, Medi-Cal gets reimbursed from whatever is left when your child dies. But CalABLE accounts have no Medi-Cal payback in California (SB 218). Moving $20,000/year from the SNT into CalABLE shifts assets from payback-exposed to payback-free. Every year you skip this, you’re leaving money on the table for the state.
6. Not budgeting for California’s 13.3% state tax on trust income. The trust doesn’t just pay federal taxes — it pays California’s highest-in-the-nation rate too. On $50,000 in trust investment income, that’s roughly $5,000–$6,000 extra per year. If your trustee isn’t managing for tax efficiency (municipal bonds, strategic distributions, timing of capital gains), you’re losing money.
7. Waiting until after you die to set up the trust. If you’re reading this page, do it now. Not next year. Your estate plan, your will, your life insurance beneficiary designations — all of it needs to point to the trust before something happens to you.

The best way to avoid these mistakes? Work with an attorney who knows California special needs law. Find California attorneys →

Beyond the Trust: Other California Planning Steps

Conservatorship: When your child turns 18, you may need legal authority to help with decisions. California uses “conservatorship” (not guardianship) for adults. A limited conservatorship grants only the specific powers your child needs. Since AB 1663, courts must also consider supported decision-making first. Compare your options →
Regional Centers & Waivers: California’s Lanterman Act guarantees DD services with no waitlist through 21 Regional Centers. The Self-Determination Program gives families direct budget control. IHSS provides in-home support (family members can be paid providers). Learn about waivers →