A properly drafted Special Needs Trust preserves access to means-tested benefits while securing funds for supplemental needs such as therapies, adaptive equipment, and enrichment programs. It reduces family financial burden, clarifies decision-making authority, and creates a flexible framework that adapts to changing medical, educational, and long-term care needs.
A properly structured trust allows beneficiaries to retain eligibility for programs like Medicaid and Supplemental Security Income while receiving additional support from trust distributions. This preservation of benefits ensures access to essential services such as long-term care, prescription coverage, and case management.
Hatcher Legal brings practical estate and business law experience to special needs planning, helping families draft compliant trust documents, select appropriate trustees, and coordinate related estate planning instruments. Our approach emphasizes clear language, long-term stability, and alignment with the beneficiary’s care goals.
Laws and personal circumstances change. We recommend regular reviews to adjust distribution language, update trustees, and respond to changes in benefits rules to preserve eligibility and reflect the beneficiary’s current needs and priorities.
A first-party Special Needs Trust is funded with assets that belong to the beneficiary, such as an inheritance or settlement, and generally includes a Medicaid payback requirement where remaining funds reimburse the state for paid benefits. These trusts protect eligibility while holding the beneficiary’s assets in a manner that does not count toward resource limits. A third-party trust is funded by someone other than the beneficiary, commonly a parent or grandparent, and typically avoids a payback requirement. Third-party trusts provide more post-death flexibility and allow remaining funds to pass to other family members or designated beneficiaries according to the trust terms.
A properly drafted Special Needs Trust is designed to preserve Medicaid and Supplemental Security Income eligibility by ensuring trust assets are not treated as the beneficiary’s countable resources. Trust provisions and trustee practices should reflect permissible uses that supplement rather than supplant public benefits, and distributions must be carefully documented. However, poorly drafted or improperly funded trusts can jeopardize benefits, so legal review is essential. We evaluate the trust structure and coordination with benefit rules to minimize risk and advise on compliant distribution practices and recordkeeping.
A trustee should be someone who combines fiscal responsibility with an understanding of the beneficiary’s needs. Family members, trusted friends, or a corporate trustee can serve, each with trade-offs: family trustees offer familiarity while corporate trustees provide continuity and professional administration. Trustee responsibilities include managing investments, making distributions consistent with trust terms and benefits rules, keeping records, filing required reports, and communicating with caregivers and service providers. Clear trustee powers and reporting requirements in the trust reduce disputes and administrative burdens.
Yes, a trust can be funded after creation. Funding methods include retitling bank or investment accounts, naming the trust as a beneficiary on life insurance or retirement accounts where appropriate, or directing settlement proceeds into the trust. Proper procedures must be followed to ensure funds are recognized as trust assets. When funding a first-party trust with settlement proceeds, courts or insurance companies may need to approve routing funds into the trust. We assist with transfer paperwork and coordinate with financial institutions and claims administrators to complete funding correctly.
What happens to trust funds after the beneficiary dies depends on the trust type and its terms. First-party trusts commonly require Medicaid payback for benefits provided during the beneficiary’s life, with any remaining amounts then distributed as the trust specifies or to pay debts. Third-party trusts allow the settlor to direct remaining assets to family members, charities, or other beneficiaries without payback. Clear trust language ensures your post-death distribution intentions are followed while complying with applicable state rules.
ABLE accounts are supplemental tax-advantaged savings vehicles that do not replace the need for a trust but can complement it. Funds in an ABLE account may be used for qualified disability expenses without affecting certain benefits, subject to contribution and account balance limits. Families often use ABLE accounts for short-term savings and daily needs while reserving trust funds for larger or longer-term items. Coordination is necessary to manage overlapping resources and ensure combined assets remain within program thresholds.
Settlements and awards can affect benefits eligibility if the proceeds are considered the beneficiary’s countable resources. Placing settlement funds into a properly drafted Special Needs Trust can protect eligibility, especially when a first-party payback trust is used for proceeds belonging to the beneficiary. It is important to involve legal counsel before accepting settlements to structure distributions and trust funding correctly. Early planning avoids unintended disqualification and ensures settlement funds are used to enhance the beneficiary’s care without compromising public assistance.
Review a Special Needs Trust at least every few years and after major life events such as changes in health, benefit rules, trustee changes, or significant asset transfers. Regular reviews help ensure the trust remains compliant with evolving Medicaid and Supplemental Security Income rules and that trustees are prepared to administer it. We recommend scheduling reviews when testamentary documents are updated or when family circumstances change. Periodic legal updates preserve benefits protections and adapt distributions to the beneficiary’s current lifestyle and care needs.
Naming family members as trustees can work well when they are capable and willing to serve, offering personal insight into the beneficiary’s needs. However, family trustees may face emotional burdens or management challenges, and continuity can be an issue if circumstances change. Professional or corporate trustees provide administrative continuity and benefit-rule knowledge, but they come with fees. Many families choose co-trustees or successor arrangements that blend family involvement with professional oversight to balance compassion, longevity, and administrative competence.
Virginia law affects trust drafting, Medicaid payback provisions, and how courts may treat certain trust arrangements. First-party trusts must meet federal and state Medicaid rules to be recognized for payback purposes, and specific Virginia statutes and case law can influence drafting nuances and funding procedures. Local counsel can ensure trust language aligns with Virginia regulations governing beneficiary protections and payback obligations and can assist in coordinating with Virginia Medicaid offices and courts when necessary to fund trusts with settlements or estate assets.
