Special needs trusts protect eligibility for needs-based programs like Supplemental Security Income and Medicaid while permitting discretionary payments for services and supports. They offer continuity of care, professional or family fiduciary oversight, and a structured plan to manage funds across changing medical needs, life stages, and caregiver transitions.
Careful drafting preserves eligibility for SSI and Medicaid by ensuring trust assets are not treated as countable resources. Discretionary distribution language and appropriate funding routes help families maintain access to necessary health care and support services without sacrificing supplemental financial assistance.
Hatcher Legal, PLLC combines business and estate law experience with a focus on practical planning for families. We draft trust documents that address benefits rules, coordinate with financial and medical providers, and design administration practices that make it easier for trustees to manage funds and demonstrate compliance.
We assist trustees with documentation, distribution decisions, and communications with benefits agencies. Ongoing support includes periodic reviews, coordination of payments for medical and supportive services, and guidance on recordkeeping to demonstrate that trust distributions comply with benefits rules.
A special needs trust is a legal arrangement that holds funds for a person with disabilities while preserving eligibility for means-tested benefits such as SSI and Medicaid. The trust provides discretionary distributions for supplemental needs like therapies, assistive technology, and education that do not count as the beneficiary’s own resources. Trust protections depend on proper drafting, trustee discretion, and correct funding steps. The trustee must administer distributions to enhance the beneficiary’s quality of life without providing direct cash that could be treated as allowable income, and should keep thorough records to demonstrate compliance with benefits rules.
A first-party special needs trust is funded with the beneficiary’s own assets, often after a settlement or inheritance, and generally must include a payback provision to reimburse Medicaid upon the beneficiary’s death. A third-party trust is funded by others and typically avoids Medicaid payback, making it a preferred vehicle for inheritances and gifts. Choice between the two depends on funding source and long-term goals. First-party trusts protect current benefits when the beneficiary receives personal funds, while third-party trusts enable families to provide ongoing support without state recovery requirements at the beneficiary’s death.
Settlement proceeds can be placed into a special needs trust to preserve eligibility for public benefits, but the type of trust depends on who receives the settlement and statutory requirements. When proceeds belong to the beneficiary, a first-party trust or pooled trust is often required and may involve court approval. For third-party settlements paid to a family member, funds can typically be placed into a third-party trust to avoid impacting the beneficiary’s benefits. Proper documentation, court orders when necessary, and careful drafting are essential to ensure compliance with benefit and state rules.
Trustees are chosen for their judgment, reliability, and ability to manage financial and personal decisions for the beneficiary. Families often name a trusted relative or friend, a professional fiduciary, or a nonprofit pooled trust as trustee, and should also name successor trustees to ensure continuity of management. Trustee responsibilities include managing investments, making discretionary distributions consistent with trust terms, keeping records, coordinating with benefits agencies, paying bills related to the beneficiary’s care, and communicating transparently with family members and advisors about trust activity.
When properly drafted and funded, a special needs trust can preserve eligibility for Medicaid and SSI by ensuring trust assets are not treated as the beneficiary’s own resources. Key features include discretionary distribution language and safeguards to prevent direct cash distributions that could disqualify benefits. Administration matters as much as drafting. Trustees must document all payments, avoid providing counts of resources to the beneficiary, and coordinate with benefits administrators to demonstrate that trust distributions are supplemental and do not replace services or income provided by public programs.
For first-party trusts, state Medicaid agencies typically have a right of recovery for medical expenses paid on the beneficiary’s behalf, which is fulfilled through a payback clause. For third-party trusts, remaining assets at the beneficiary’s death are usually distributed to named remainder beneficiaries according to the trust terms. Effective planning addresses remainder intentions, possible charitable gifts, and strategies to minimize estate complications. Naming contingent remainder beneficiaries and aligning trust terms with estate plans avoids probate and ensures assets pass according to the family’s wishes.
ABLE accounts offer a straightforward way for eligible individuals to save for disability-related expenses without losing certain benefits, and they are well suited for smaller savings needs. However, ABLE accounts have contribution and balance limits and cannot hold large settlements or inheritance amounts in the same way a trust can. ABLE accounts and special needs trusts can work together: ABLE accounts can handle routine, smaller expenses while a trust manages larger or more complex funding, provides broader distribution authority, and addresses long-term legacy or housing needs for the beneficiary.
A special needs trust should be reviewed at least annually and whenever there are major life events such as a new inheritance, a settlement, changes in the beneficiary’s health, or shifts in caregiver availability. Regular reviews ensure the trust continues to meet the beneficiary’s needs and remains consistent with current benefits rules. Legal and regulatory changes can affect trust administration, so periodic updates are advisable. Reviews also allow for retirement account coordination, beneficiary designation changes, and adjustments to trustee powers or distribution standards as circumstances evolve.
Yes. Parents can leave money in a will to fund a third-party special needs trust rather than making an outright bequest. This prevents a direct legacy from counting as the beneficiary’s resource and allows the trustee to manage funds for supplemental needs while preserving public benefits. To be effective, wills and trust documents must be coordinated so that funds pass into the trust at probate or via beneficiary designation. Clear instructions, trustee appointment, and funding mechanisms reduce the chance of an outright distribution that could jeopardize benefits.
Costs to set up a special needs trust vary with complexity, the trust type, and whether settlement or court approval is required. Flat fees or hourly arrangements are common; simple third-party trusts are typically less expensive than first-party trusts tied to settlements, which may need additional filings and administration. Ongoing administration also has costs, including trustee fees, accounting, and reporting. Pooled trusts can be a cost-effective alternative for smaller accounts, while larger trusts may benefit from professional investment management and structured trustee support to ensure proper compliance and oversight.
