Carefully designed trusts that allow individuals with disabilities to benefit from assets without losing eligibility for the government programs they depend on.
Individuals with disabilities often depend on government benefit programs — Supplemental Security Income (SSI), Medicaid, and others — that impose strict asset and income limits. A well-intentioned gift or inheritance can disqualify a loved one from these critical benefits, sometimes without the family even realizing it. The solution is a Special Needs Trust — a carefully designed legal structure that allows a person with a disability to benefit from assets without losing eligibility for the programs they depend on.
How a Special Needs Trust Works
A properly drafted Special Needs Trust holds assets for the benefit of a person with a disability, but those assets are not counted as available resources for purposes of SSI or Medicaid eligibility. The trust can be used to pay for goods and services that government programs do not cover — things like recreation, travel, education, technology, and personal care items — significantly improving the beneficiary's quality of life without jeopardizing their benefits. The trust is administered by a trustee who manages distributions in a way that preserves eligibility.
Types of Special Needs Trusts
A third-party Special Needs Trust is funded with assets belonging to someone other than the beneficiary — typically a parent, grandparent, or other family member — and does not require a Medicaid payback provision upon the beneficiary's death. A first-party or self-settled Special Needs Trust is funded with assets belonging to the person with the disability and does require a Medicaid payback provision. We help families understand which type is appropriate and draft trusts that comply with all applicable requirements.
Coordinating Your Entire Estate Plan
Estate planning for families with a loved one who has special needs requires particular care. A standard will or trust can inadvertently disqualify a beneficiary from essential programs. We work with families to ensure that their entire estate plan — not just the Special Needs Trust — is coordinated to protect the person they care about most.
Frequently Asked Questions
The trustee of a Special Needs Trust has significant responsibilities — managing investments, making appropriate distributions, filing tax returns, and keeping detailed records. The trustee must understand the SSI and Medicaid rules to avoid distributions that could disqualify the beneficiary. A family member may serve, but must be willing and able to take on these responsibilities. A professional or institutional trustee is another option, particularly for larger trusts. In some cases, a co-trustee arrangement — one family member and one professional — provides the best combination of personal knowledge and professional expertise.
A Special Needs Trust can pay for a wide range of goods and services that enhance the beneficiary's quality of life without replacing the government benefits they receive. This includes things like recreation and entertainment, travel and vacations, education and vocational training, electronics and technology, personal care items not covered by Medicaid, and supplemental medical or dental care. What the trust cannot do is make distributions that replace SSI or Medicaid — such as paying for food or shelter in ways that reduce the beneficiary's benefits. Trustee distributions must be carefully structured.
Yes — and this is one of the most important planning tools available to families with a loved one who has special needs. A testamentary Special Needs Trust is created within a will and comes into existence at the death of the person who made the will. Parents commonly include a Special Needs Trust in their wills to ensure that any inheritance left to a child with a disability is held in trust rather than distributed outright — which could disqualify the child from benefits. Grandparents and other family members can do the same.
For a third-party Special Needs Trust — funded with assets from family members — the remaining assets pass to the remainder beneficiaries named in the trust document, such as siblings or other family members. There is no Medicaid payback requirement. For a first-party or self-settled Special Needs Trust — funded with the beneficiary's own assets — federal law requires that any remaining funds be used to reimburse Medicaid for benefits paid on the beneficiary's behalf before passing to other beneficiaries.
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