What is a Special Needs Trust and How Does it Work?

As a parent or caregiver of a loved one with special needs, your top priority is ensuring they are provided for—both now and in the future. You want to give them every opportunity to thrive and live fulfilling, independent lives to the fullest extent possible.

But, the legal and financial considerations of caring for someone with disabilities can feel overwhelming, leaving you uncertain about the best way to protect their well-being. That’s where a special needs trust can make all the difference.

This powerful estate planning tool allows you to make financial support for your loved one’s lifelong care while preserving their eligibility for critical government benefits like Medicaid and Supplemental Security Income (SSI).

At Safe Harbor Estate Law, our attorneys have helped countless families create special needs trusts that give them the confidence and clarity to focus on what matters most – providing exceptional care and support. Here’s what you need to know about special needs trusts and how they work.

What is a Special Needs Trust?

A special needs trust is an estate planning document designed to provide financial resources for individuals with disabilities without jeopardizing their eligibility for government benefits like Medicaid and Supplemental Security Income (SSI).

This trust allows you to make provisions for your loved one’s lifelong care and quality of life while ensuring they can continue to access the healthcare, income support, and other assistance programs they rely on.

Special needs trusts come in several different forms, but their core purpose is the same—to supplement, rather than replace, the government’s benefits.

There Are Three Types of Special Needs Trusts

There are three primary types of special needs trusts that you should be aware of:

First-Party Special Needs Trust (or Self-Settled Trust)

This type of trust is established using the assets of the individual with special needs, often through a personal injury settlement, inheritance, or other funds belonging to the individual.

It allows people with special needs to retain eligibility for government benefits, such as Medicaid and Supplemental Security Income (SSI), while still utilizing trust funds for supplemental needs not covered by these benefits.

Third-Party Special Needs Trust

A third-party special needs trust is created by someone other than the individual with special needs, such as a parent, grandparent, or other family member. Funds in a third-party special needs trust do not belong to the person with special needs, which helps ensure continued eligibility for government benefits.

This type of trust is often used for estate planning purposes to provide for the future needs of the individual with special needs while protecting their eligibility for public benefits.

Pooled Special Needs Trust

The trust is managed by a nonprofit organization that establishes and administers it on behalf of multiple beneficiaries with special needs. Funds from multiple individuals are pooled together for investment purposes, but each beneficiary has a separate account within the trust.

Pooled trusts offer professional management and may benefit those with smaller assets or who lack a suitable trustee to manage a traditional trust.

How to Setup a Special Needs Trust for a Person With a Disability

Several steps are required to set up a special needs trust for a disabled person.

1. Choose a Trustee: Select a trustworthy individual or professional trustee to manage the trust assets and distribute them according to the beneficiary’s needs.
2. Draft the Trust Document: Work with an attorney experienced in special needs planning to create a legally binding trust document that meets all legal requirements and addresses the beneficiary’s unique needs.
3. Fund the Trust: Transfer assets into the trust, ensuring compliance with Medicaid and SSI eligibility rules for first-party trusts and considering tax implications for third-party trusts.
4. Manage the Trust: Oversee the administration of the trust, including investment management, record-keeping, and distribution decisions, according to the terms outlined in the trust document.

Note that it is generally recommended that you establish your special needs trust as irrevocable. This means that once it is established and funded, the assets no longer belong to you.

This is done to protect the funds from creditors and reduce taxes. A revocable trust can be changed anytime, but the assets are less protected.

Protect Your Loved One’s Financial Future with a Special Needs Trust

At Safe Harbor Estate Law, we understand the unique legal and financial considerations of caring for a family member with special needs. Our estate planning attorneys are passionate about helping clients establish special needs trusts that safeguard their loved one’s access to essential government benefits while providing for their long-term care and quality of life.

Don’t leave your loved one’s future to chance. Schedule a 90-minute Confidential Life and Legacy Session with Safe Harbor Estate Law today to learn how a special needs trust can give you the peace of mind you deserve. We’ll work with you to create a customized plan that meets your family’s specific needs and goals.