Special needs trusts protect a disabled individual’s access to means-tested benefits while allowing family funds to supplement care. They prevent disqualification from benefits programs, provide a vehicle for managing assets placed for the beneficiary, and allow trustees to direct funds toward services, therapies, education, and equipment that public programs may not cover.
A well-crafted trust protects eligibility for Medicaid and Supplemental Security Income by limiting countable resources and directing distributions toward supplemental goods and services. This protection preserves access to essential medical and long-term care supports while allowing families to supplement quality-of-life needs through trust funds.
Our firm focuses on estate planning and probate matters, including trusts and elder law issues relevant to special needs planning. We assist families with trust drafting, trustee selection, and integration of trust documents into broader estate plans to ensure consistent treatment of assets and beneficiary needs.
Periodic reviews account for legislative changes, shifts in the beneficiary’s condition, and family changes that affect the trust. Updating documents and strategies ensures the plan remains effective, reduces future administrative disruption, and keeps the trust aligned with the family’s intentions.
A first-party special needs trust is funded with assets that belong to the beneficiary, often after an award or settlement, and typically contains a Medicaid payback provision. This structure protects benefit eligibility while using the beneficiary’s assets for supplemental needs. A third-party trust is funded by someone other than the beneficiary, such as a parent or relative, and usually does not require payback. Third-party trusts offer greater flexibility for post-death distribution and are often used to preserve family inheritances while supporting the beneficiary during life.
Special needs trusts generally may not pay for items considered basic support if those items would be provided through public benefits, as doing so could affect eligibility. Trustees should prioritize supplemental goods and services that enhance quality of life without replacing benefits such as basic food or housing when those are covered by public assistance. That said, certain trust distributions can fund enhanced housing or specialized living arrangements that provide services beyond those available through public benefits. Proper drafting and trustee discretion are necessary to maintain benefit eligibility while addressing individualized living needs.
ABLE accounts are tax-advantaged savings vehicles for individuals with disabilities that do not count as resources for many means-tested benefits up to contribution limits. They can be used for qualified disability expenses and are often coordinated with special needs trusts as part of a broader financial plan. Families may use ABLE accounts for routine qualified expenses while preserving trust funds for larger or more specialized needs. Careful planning ensures contribution limits and eligible expense rules are followed so that ABLE accounts complement rather than complicate trust planning.
Trustees should be trustworthy, organized, and familiar with benefit rules and the beneficiary’s needs. Many families name a trusted relative or friend as trustee and may appoint a corporate trustee or fiduciary service if ongoing professional administration is preferred for continuity and impartiality. It is prudent to designate successor trustees and provide clear written instructions about distribution priorities and reporting expectations. Trustee training and access to professional advisors can help ensure sound administration and consistent support for the beneficiary.
When properly drafted, special needs trusts preserve Medicaid and Supplemental Security Income eligibility by ensuring trust assets are used for supplemental needs rather than counted as available resources. Trust terms, trustee actions, and funding sources must align with federal and Virginia rules to avoid jeopardizing benefits. Miscalculations or improper distributions can risk eligibility, so trustees should maintain careful records and consult legal counsel or benefits advisors when making significant disbursements. Periodic reviews help ensure ongoing compliance with changing regulations.
The disposition of remaining trust assets depends on whether the trust is first-party or third-party and the specific trust terms. First-party trusts frequently include a payback clause requiring reimbursement to Medicaid for services provided, while third-party trusts often permit distribution to other family members or charities after the beneficiary’s death. Clear succession provisions and beneficiary designation instructions should be included in the trust document to reflect family intentions and any obligations to reimburse public benefits. Planning ahead can limit conflict and ensure remaining funds are used as intended.
After receiving a settlement, placing proceeds into a properly drafted special needs trust protects the beneficiary’s benefits while making funds available for supplemental needs. It is important to structure the settlement and trust funding carefully to meet legal requirements and benefit rules. Coordinate with counsel experienced in settlement planning to draft trust language, handle allocations for attorney fees or liens, and provide the court or settlement administrator with the necessary documentation to direct funds into the trust without disrupting public benefit eligibility.
Virginia follows federal requirements for special needs trusts and may require specific payback language in first-party trusts to comply with Medicaid recovery rules. Trusts should be drafted to meet both state and federal standards, including clear distribution terms and trustee responsibilities. Working with counsel familiar with Virginia law helps ensure the trust includes necessary provisions for enforceability and compliance, reducing the risk of retroactive benefit denials or recovery disputes with state agencies.
Review a special needs trust whenever major life events occur, such as inheritances, changes in benefits, shifts in caregiving arrangements, or significant changes in the beneficiary’s medical condition. Regular reviews, at least every few years, help ensure trust documents remain aligned with current laws and family circumstances. Periodic updates allow trustees and families to adjust distribution standards, successor trustee designations, and funding strategies. Proactive reviews reduce surprises and help the trust continue to meet the beneficiary’s long-term needs effectively.
Family members can be compensated for serving as trustees, but the trust document should specifically authorize reasonable compensation and detail payment terms. Compensation must be reasonable in light of duties performed and consistent with trust provisions to avoid disputes and maintain transparent administration. When compensation is provided, maintain clear records and consider periodic accounting or independent oversight to ensure trustee actions and payments remain appropriate, preserve trust assets, and maintain beneficiary protections.
