Understanding Special Needs Trust

A special needs trust is a trust specifically designed to hold assets on behalf of and for the benefit of a disabled person, for the purpose of providing for their needs while preserving eligibility for Medicaid, SSI, and other government assistance.

Trust documents are written to prevent trustees from disbursing too much money directly to the beneficiary, endangering their eligibility for these programs. Experts in special needs trusts also craft these documents to account for other income or resources available to the disabled individual. 

Assets in a properly drafted special needs trust are not counted against the disabled individual for the purposes of Medicaid and SSI eligibility. Trusts can also help avoid the high costs and delays of probate. Assets in trusts bypass probate, and pass directly to beneficiaries. 

There are two types of special needs trusts, known as first-party and third-party. A first-party special needs trust is often used when a person with a disability inherits or acquires money or assets. First-party special needs trusts are subject to Medicaid “clawback” – where up to the remaining balance of the account may be paid out to the state for repayment of Medicaid services received by the beneficiary. 

Third-party special needs trusts are established by someone other than the beneficiary, or the person with a disability, to plan in advance. These trusts can be created under a Last Will and Testament or within a Living Trust. Third-party special needs trusts are not subject to Medicaid “clawback.”

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Example of Expenses

  • Medical and dental benefits not covered under Medicaid
  • Durable medical equipment
  • Adaptive technology
  • Legal expenses
  • Home modifications to accommodate a disability, such as installing wheelchair ramps, installing grab bars, or widening doors
  • Transportation assets, such as a modified van
  • Bus passes or Uber fares
  • Education and training
  • Hobbies and recreation
  • Quality of life expenditures
  • Burial expenses
  • Certain travel or vacation expenses
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Parents, guardians, and trustees should take care not to use special needs trust assets to pay for ineligible costs, because that would trigger a dollar-for-dollar reduction in SSI benefits. If SSI benefits are reduced to zero, that could render the beneficiary ineligible for Medicaid as well.

Commonly Asked Questions

How much money can you put in a Special Needs Trust?

Any amount. There is no limit to what can go in a trust. There are limits to what you can use the money for, though. Specifically, the money in the trust can’t be used to pay for food, clothing, or shelter. Otherwise, SSI benefits will be reduced by that amount, dollar for dollar. If you lose your SSI, you could also lose eligibility for Medicaid (MediCal in California).

Can I do a Special Needs Trust by myself?

Trusts need to be written by qualified attorneys, with language specifically crafted to preserve asset protection and eligibility for need-based assistance, including Medicaid. The language also has to be specific to each state, since each state has different rules for Medicaid eligibility and eligibility for other government programs. 

This isn’t something just any attorney can do. You should use an attorney who specializes in special needs, Medicaid planning, and related fields. They will be up on the latest developments in Medicaid planning, and will know the precise language that needs to be included in the trust to avoid running afoul of Medicaid rules and other requirements. 

Here at AblePlanning.com, we can provide our clients with referrals to trusted attorneys. The attorneys that we recommend are skilled, knowledgeable, and have your loved one’s best interest in mind.

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Some materials, in whole or in part provided by the Academy of Special Needs Planners, an independent 3rd-party. The information contained here does not purport to be a complete description of the topics referred to in this material. As of the date published the information is considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete due to ever changing legal constructs and state specific differences. Please note, changes in laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Saybrook Wealth Group, we are not licensed to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.