California State Teachers Retirement System Beneficiary Designations for a Child with Special Needs.
- Michael Pearce
- May 18
- 6 min read
To: Mary Sample
Subject: The “ d4A Trust” Requirement for California State Teachers Retirement System Survivor Benefit Upon Retirement
NOTICE: This memorandum is not intended to provide legal advice. This information is provided for general information only.
Purpose
This memo outlines the steps necessary to ensure that your adult child with a disability can receive California State Teacher’s Retirement System survivor benefits without losing eligibility for needs-based public programs like SSI or Medi-Cal.
Key Issue
You wish to name your adult disabled child as the intended beneficiary of your Retirement survivor continuance benefit. However, due to the child's continued eligibility for public assistance programs, the benefit must be directed to a properly structured First-Party Special Needs Trust, also known as a “d4A” Trust. A Significant Benefit For State Teachers Retirement System Members.
Even though there is extra work and expense involved with setting up a separate d4A Special Needs Trust for your child as a beneficiary, the results are well-worth it. When done correctly, the d4A Trust solution can ensure that the benefits will be receive and properly administered in a Trust for a lifetime income stream! See the Appendix for the steps the Sate Legislature has taken to codify this benefit for your child.
Why a d4A Trust Is Required
The California Teacher’s Retirement System allows benefits to be paid to a First-Party Special Needs Trust (created under 42 U.S.C. §1396p(d)(4)(A)) if:
The trust is established for the sole benefit of the disabled individual under age 65.
The trust is irrevocable, and any funds must be used for the benefit of the disabled person.
The trust includes a Medicaid payback provision upon the death of the beneficiary.
This structure protects eligibility for Supplemental Security Income (SSI) and Medi-Cal by ensuring that the benefit payments are not counted as income or assets directly available to your child.
Why You Cannot Use Your Living Trust or Third-Party SNT
Your current estate plan likely includes a Third-Party Special Needs Trust (SNT) within your Living Trust. While that type of trust is appropriate for passing inheritance assets to a disabled loved one, it cannot be used for the your Retirement survivor benefit because:
The benefit originates from the disabled child’s parent (the Teacher Member), making it a “first-party” asset in the eyes of public benefit programs.
CalSTRS requires that the benefit go into a qualified d4A trust, not a discretionary third-party SNT.
Third-party trusts lack the Medicaid payback provision, which is a required feature for receiving government benefits when using first-party assets.
Next Steps
Work with an attorney experienced in special needs planning to draft and establish a d4A trust.
Ensure the trust complies with all requirements under federal and California law.
Submit the completed Retirement System’s Certification of a Special Needs Trust (Form DS-1854) with your benefit election.
Confirm the trust is properly named as the option beneficiary in your Retirement Documents.
A significant benefit for California Teachers.Even though there is extra work involved with setting up a separate d4A Special Needs Trust for your child as a beneficiary, the results are well-worth it. When done correctly, the d4A Trust solution can ensure that the benefits will be receive and properly administered in a Trust for a lifetime income stream!
APPENDIX:California's Law Authorizing Special Needs Trusts as Cal-STRS Beneficiaries
Prior to 2016, members of the California State Teachers' Retirement System (CalSTRS) could not designate a trust as an option beneficiary for retirement benefits. This created challenges for members who wanted to provide for dependents with disabilities while preserving their eligibility for government assistance programs.
Assembly Bill 1875: The Enabling Legislation
In 2016, California enacted Assembly Bill 1875 (AB 1875), authored by Assembly Member Chávez, which specifically authorized CalSTRS to accept Special Needs Trusts as beneficiaries. This legislation was signed into law and codified as Chapter 559, Statutes of 20161116.
Legislative History and Purpose
AB 1875 was introduced on February 10, 2016, and was designed to permit irrevocable trusts established for individuals with disabilities to be named as option beneficiaries or annuity beneficiaries under CalSTRS11. The bill received bipartisan support, passing through committee with a unanimous vote16.
The legislation amended multiple sections of the California Education Code and added two key new sections:
Key Provisions of the Law
The law specifically permits:
CalSTRS Defined Benefit Program members and Cash Balance Benefit Program participants to designate a specific type of trust established for an individual with disabilities (a "special needs trust") as an option beneficiary or annuity beneficiary11.
These trusts must satisfy specific requirements to qualify:
The trust must satisfy the requirements of subparagraph (A) or (C) of paragraph (4) of subdivision (d) of Section 1396p of Title 42 of the United States Code8
The trust must satisfy the requirements of Section 1.401(a)(9)-4 of Title 26 of the Code of Federal Regulations8
The trust must be for the sole benefit of a single beneficiary, with any other beneficiaries limited to successor beneficiaries8
The bill allows beneficiaries of special needs trusts to receive benefits for the duration of the disabled individual's lifetime11.
Implementation Process
To implement this option, CalSTRS created specific forms including:
The law provides that CalSTRS "shall not be required to determine the powers of a trustee or the validity of a trust or of any of the terms of a trust that is elected as a beneficiary." Instead, CalSTRS can rely on the acknowledged certification by the member or trustee that the trust meets the legal requirements7.
Significance of the Legislation
This law represented a significant improvement for CalSTRS members with disabled dependents, allowing them to provide for these individuals through their retirement benefits while preserving the dependents' eligibility for essential government assistance programs such as Supplemental Security Income (SSI) and Medicaid (Medi-Cal in California)317.
The legislation became effective on January 1, 2017, and has since helped numerous CalSTRS members establish appropriate financial security for their disabled dependents78.
Conclusion
Assembly Bill 1875 (Chapter 559, Statutes of 2016) was a targeted piece of legislation that addressed a specific need among CalSTRS members. By allowing special needs trusts to be named as beneficiaries, the law created an important planning tool for families with disabled dependents, ensuring that these individuals could receive financial support without jeopardizing their eligibility for crucial government assistance programs.
Citations:
APPENDIX: California Law Authorizing Special Needs Trusts as CalSTRS Beneficiaries
Prior to 2016, members of the California State Teachers' Retirement System (CalSTRS) could not designate a trust as an option beneficiary for retirement benefits. This created challenges for members who wanted to provide for dependents with disabilities while preserving their eligibility for government assistance programs.
Assembly Bill 1875: The Enabling Legislation
In 2016, California enacted Assembly Bill 1875 (AB 1875), authored by Assembly Member Chávez, which specifically authorized CalSTRS to accept Special Needs Trusts as beneficiaries. This legislation was signed into law and codified as Chapter 559, Statutes of 2016.
Legislative History and Purpose
AB 1875 was introduced on February 10, 2016, and was designed to permit irrevocable trusts established for individuals with disabilities to be named as option beneficiaries or annuity beneficiaries under CalSTRS. The bill received bipartisan support, passing through committee with a unanimous vote.
The legislation amended multiple sections of the California Education Code and added two key new sections:- Section 24613.5 (for the Defined Benefit Program)- Section 26106.5 (for the Cash Balance Benefit Program)
Key Provisions of the Law
The law specifically permits:- CalSTRS Defined Benefit Program members and Cash Balance Benefit Program participants to designate a specific type of trust established for an individual with disabilities (a "special needs trust") as an option beneficiary or annuity beneficiary.
These trusts must satisfy specific requirements to qualify:- The trust must be irrevocable.- The trust must satisfy the requirements of subparagraph (A) or (C) of paragraph (4) of subdivision (d) of Section 1396p of Title 42 of the United States Code.- The trust must satisfy the requirements of Section 1.401(a)(9)-4 of Title 26 of the Code of Federal Regulations.- The trust must be for the sole benefit of a single beneficiary, with any other beneficiaries limited to successor beneficiaries.
Implementation Process
To implement this option, CalSTRS created specific forms including:- Certification of a Special Needs Trust form (SR 1854/DS1854)- Cash Balance Postretirement Special Needs Trust Election form (CB 1855)
The law provides that CalSTRS "shall not be required to determine the powers of a trustee or the validity of a trust or of any of the terms of a trust that is elected as a beneficiary." Instead, CalSTRS can rely on the acknowledged certification by the member or trustee that the trust meets the legal requirements.
Significance of the Legislation
This law represented a significant improvement for CalSTRS members with disabled dependents, allowing them to provide for these individuals through their retirement benefits while preserving the dependents' eligibility for essential government assistance programs such as Supplemental Security Income (SSI) and Medicaid (Medi-Cal in California).
The legislation became effective on January 1, 2017, and has since helped numerous CalSTRS members establish appropriate financial security for their disabled dependents.
Conclusion
Assembly Bill 1875 (Chapter 559, Statutes of 2016) was a targeted piece of legislation that addressed a specific need among CalSTRS members. By allowing special needs trusts to be named as beneficiaries, the law created an important planning tool for families with disabled dependents, ensuring that these individuals could receive financial support without jeopardizing their eligibility for crucial government assistance programs.
Citations:
