Now Serving
NC · MD · VA
A properly drafted special needs trust protects eligibility for means-tested benefits while enabling additional support for housing, education, medical care not covered by public programs, therapies, transportation, and recreational activities. It offers peace of mind by providing a legal structure to direct funds toward improving a beneficiary’s life without risking loss of essential government assistance.
A central benefit of careful planning is maintaining eligibility for critical programs like Medicaid and SSI while using trust resources to provide meaningful enhancements—adaptive equipment, therapies, community activities, and travel. Thoughtful distribution policies allow tailored support without triggering ineligibility for necessary public benefits.
Families rely on Hatcher Legal for practical, client-focused planning that addresses legal and benefit complexities. We prioritize clear explanations, personalized strategies, and coordination with financial and care professionals. Our goal is to produce plans that reduce administrative burdens for families and support consistent long-term care for beneficiaries.
We provide trustees with clear guidance on permissible distributions, documentation practices, and interaction with benefits administrators. Trustees receive practical templates and ongoing counsel to address questions, handle audits, and maintain compliance with statutory and fiduciary responsibilities.
A first-party special needs trust is funded with assets that belong to the beneficiary, such as settlement proceeds, and typically includes a payback provision to reimburse Medicaid upon the beneficiary’s death. A third-party special needs trust is funded by someone other than the beneficiary, usually parents or relatives, and is generally not subject to Medicaid payback rules. Choosing between them depends on the source of funds and long-term goals. First-party trusts protect assets originally belonging to the beneficiary, while third-party trusts allow family members to leave supplemental support through estate planning without exposing those funds to payback provisions.
When properly drafted and administered, a special needs trust is designed to preserve eligibility for means-tested programs like Medicaid and Supplemental Security Income by keeping assets off the beneficiary’s personal resource calculations. The trust must limit distributions to supplemental needs rather than basic support covered by public benefits. Administration matters: trustee decisions, recordkeeping, and clear documentation of permissible payments are essential. Mistakes or improper distributions can risk benefits, so coordination with counsel and benefit administrators helps prevent unintended disqualification.
Family members often serve as trustees because they understand the beneficiary’s needs and values. However, trustees must manage fiduciary responsibilities, maintain careful records, and make distribution decisions consistent with benefit rules. If a family member is unable or unwilling to perform these duties, a professional trustee or nonprofit pooled trust may provide administrative continuity. Many families use co-trustee arrangements combining a trusted family member with a professional or nonprofit co-trustee to blend personal knowledge with administrative reliability. This approach can reduce the burden on relatives while ensuring consistent compliance with program rules.
Special needs trusts can pay for supplemental items that enhance quality of life, such as therapy, education, transportation, adaptive equipment, recreational activities, and certain medical expenses not covered by public programs. The distinction between supplemental and basic support is important: paying for room and board that replaces benefits may threaten eligibility. Trustees should follow clear distribution policies and maintain receipts and records. Consulting with counsel or benefit administrators before making major purchases helps ensure the chosen expenditures are consistent with preserving public benefits.
A pooled trust is managed by a nonprofit organization that pools funds for investment and administration while maintaining individual subaccounts for beneficiaries. Pooled trusts often accept first-party funds and handle payback obligations through the nonprofit, providing an option for families without a private trustee or for beneficiaries receiving settlements. Individual special needs trusts are established for a single beneficiary and can be tailored by family members. They may offer greater control and customization but typically require a trustee capable of ongoing administration and compliance with benefit rules.
Yes, settlement funds from personal injury cases can often be placed into a first-party special needs trust to protect benefit eligibility. Proper handling requires timely establishment of the trust, appropriate language meeting statutory requirements, and coordination with counsel to ensure the settlement is disbursed directly into the trust where required. Failing to place settlement proceeds into a compliant trust can result in loss of Medicaid or SSI eligibility. Attorneys and financial advisors should confirm the trust document meets state and federal rules applicable to the beneficiary’s benefits before settlement distribution.
A payback clause requires that remaining funds in a first-party special needs trust be used to reimburse Medicaid for benefits provided during the beneficiary’s lifetime after the beneficiary’s death. Many states mandate such clauses when a trust is funded with the beneficiary’s own assets, such as settlement proceeds or personal savings. Third-party trusts typically do not require payback and can pass remaining funds according to the grantor’s instructions. Understanding whether a trust will be subject to payback is essential when selecting the trust type and drafting beneficiary protections.
ABLE accounts offer tax-advantaged savings for qualified disability expenses and may be used alongside a special needs trust. ABLE accounts are limited by contribution caps and account balance rules that affect SSI eligibility when balances exceed federal thresholds, so they are best for smaller savings and short-term expenses. Because ABLE accounts are owned by the beneficiary, larger inheritances or settlements typically require a special needs trust to preserve benefit eligibility. Coordinating ABLE use with trust planning allows families to maximize flexibility while protecting long-term benefits.
It is advisable to review special needs trusts and related estate plans regularly, at least every two to three years, or immediately after major life events such as changes in benefits, significant asset changes, a beneficiary’s health developments, or the death or incapacity of a trustee or caregiver. Law and program rules can change, affecting the plan’s effectiveness. Regular reviews ensure distribution standards remain appropriate, trustees are prepared, and funding strategies are up to date. Scheduled check-ins reduce the risk of surprise complications and help families adapt plans to evolving needs and legal developments.
Upon receiving an inheritance for a beneficiary on public benefits, do not transfer funds directly to the beneficiary’s personal accounts. Instead, consult counsel immediately to evaluate whether the funds should be placed into a first-party special needs trust, directed to a third-party trust via an estate plan, or managed through a pooled trust to preserve benefit eligibility. Timely action helps avoid unintended disqualification from Medicaid or SSI. Early coordination with legal counsel, financial advisors, and benefit administrators will clarify reporting requirements, funding options, and any necessary documentation to protect the beneficiary’s long-term support.
