A properly structured special needs trust preserves government benefit eligibility while permitting discretionary support for quality-of-life expenses. These trusts protect inheritances, settlement proceeds, and family gifts from disqualifying counts, provide professional or family management of funds, and create a durable plan for future housing, health, and long-term care needs.
Carefully drafted trusts protect eligibility for Medicaid, SSI, and other need-based benefits by ensuring that trust distributions are supplemental and that ownership thresholds are respected. Preservation of benefits maintains access to essential health care, long-term services, and community supports.
Clients choose Hatcher Legal for clear communication, thorough benefits analysis, and thoughtful document drafting that reflects family priorities. We prioritize practical solutions that protect public benefits while enabling discretionary spending to support a beneficiary’s daily life, education, and personal development.
Periodic reviews ensure the trust remains aligned with the beneficiary’s situation and with current law. When necessary, we recommend amendments, successor trustee changes, or funding adjustments to address new assets, changes in care needs, or regulatory updates.
A special needs trust is a legal arrangement that holds assets for a person with disabilities while preserving eligibility for public benefits. The trust allows discretionary payments for supplemental items such as therapies, transportation, education, and housing-related costs that government programs typically do not cover. Families use these trusts to protect inheritances, gifts, and settlement proceeds from counting as the beneficiary’s personal assets for means-tested benefits. A correctly drafted trust ensures that funds improve quality of life without causing unintended loss of essential supports such as Medicaid or SSI.
When drafted properly, special needs trusts preserve Medicaid and SSI eligibility by ensuring the beneficiary does not directly own disqualifying assets. Third-party trusts funded by family typically do not implicate payback rules and keep assets off the beneficiary’s resource count for eligibility purposes. First-party trusts must include a Medicaid payback provision, meaning the state may be reimbursed after the beneficiary’s death for benefits paid. Trustees must also make distributions in ways that do not create countable income that could reduce monthly benefits.
Third-party trusts are funded by parents, relatives, or third parties and generally avoid Medicaid payback requirements, making them suitable for inheritance planning. First-party trusts are funded with the beneficiary’s own assets and usually include a state payback provision, which preserves benefits during life but requires reimbursement after death. Pooled trusts are managed by nonprofits and allow individuals with modest funds to participate in a professionally administered account. Pooled trusts are useful when direct funding is limited or when families prefer nonprofit administration rather than appointing a private trustee.
Trustee selection depends on the family’s needs. A trustee may be a trusted family member, friend, or a professional fiduciary; each option has trade-offs related to cost, continuity, and financial management skills. The trustee manages distributions, records, and communications with benefits administrators according to the trust terms. You should name successor trustees in the trust document to ensure continuity if the initial trustee cannot serve. Successor designations prevent administrative gaps and protect the beneficiary if a trustee becomes unavailable or is unable to manage the trust responsibly.
Settlement proceeds intended to provide for a person with disabilities are often directed into a special needs trust so they do not disqualify the beneficiary from Medicaid or SSI. The trust terms must be drafted to make distributions supplemental to public benefits, and funding the trust promptly helps protect eligibility. When settlements involve compensation for future needs, structured settlement options or lump sums placed into a trust can be used. It is important to coordinate with the settlement agreement, counsel, and benefits administrators to avoid unintended consequences.
Special needs trusts can often be amended if the trust document contains amendment provisions and applicable law allows changes. Amendments may be needed to update trustee designations, distribution standards, or to reflect changes in the beneficiary’s care or sources of income. For irrevocable trusts or payback trusts, amendments may be limited and require court approval or beneficiary consent. Regular reviews help identify whether revisions are advisable to reflect legal changes or family circumstances and to keep the plan effective over time.
The cost to create a special needs trust varies by complexity, funding method, and whether additional services such as benefits analysis or trustee training are needed. Some families can use a relatively simple third-party trust for a moderate fee, while first-party trusts or settlement planning may involve more detailed drafting and coordination. Law firms often offer a clear fee estimate after the initial consultation. Ongoing administration costs depend on whether a family member serves as trustee or a professional trustee is engaged; professional administration will incur regular fees or a percentage of trust assets.
For an initial consultation, bring documents such as benefit award letters, recent medical summaries, bank and investment statements, insurance policies, wills, and any settlement-related paperwork. Having a clear picture of income, assets, and current supports enables a more accurate analysis of eligibility risks and funding options. Also prepare a list of the beneficiary’s daily needs, medications, therapists, school or vocational programs, and caregiver contacts. This information helps tailor the trust to actual living costs and service needs and supports realistic distribution planning.
ABLE accounts provide tax-advantaged savings for qualified disability expenses and offer a useful complement to special needs trusts for eligible beneficiaries with onset of disability before age 26. ABLE accounts have contribution limits and combined resource counting rules that make them suitable for smaller savings goals. ABLE accounts are not a full substitute for trusts when significant assets, estates, or settlements are involved. Trusts offer broader flexibility in distributions, successor provisions, and post-death planning, while ABLE accounts can be one tool among several in a comprehensive plan.
Review a special needs trust at least annually or when significant life events occur, such as changes in benefits, major asset transfers, settlement receipts, or shifts in caregiving arrangements. Annual review helps ensure distributions remain appropriate and that funding and trustee arrangements continue to meet the beneficiary’s needs. Reviews should also occur when laws affecting Medicaid, SSI, or tax treatment change. Timely adjustments preserve eligibility, address new services or expenses, and maintain consistent implementation of the family’s planning objectives.
