A well-constructed trust protects assets intended for a loved one with disabilities while preserving public benefit eligibility. It provides oversight for supplemental care, funds for therapies, transportation, equipment, and other needs not covered by public programs. Proper planning reduces family stress and creates a long-term plan for care and financial stability.
Coordinated lifetime planning ensures trust provisions work together with Medicaid planning, estate documents, and tax considerations. This reduces the likelihood of conflicting instructions, helps maintain benefit eligibility, and provides a predictable path for funding the beneficiary’s supplemental needs throughout life.
Hatcher Legal brings focused experience in estate planning and probate, with practical knowledge of Medicaid rules and trust administration. We work with families to draft documents that reflect their goals, anticipate future changes, and provide a reliable framework for trustees to manage resources responsibly.
Periodic plan reviews address changes in benefits, family circumstances, or tax law. When appropriate, amendments or successor trustee arrangements can be implemented to respond to new needs while maintaining the trust’s protective function.
A first-party special needs trust is funded with assets that belong to the beneficiary, such as an inheritance or personal injury settlement, and typically requires a Medicaid payback provision to reimburse the state for benefits after the beneficiary’s death. A third-party special needs trust is created and funded by someone other than the beneficiary, such as a parent. It generally avoids Medicaid payback requirements and is often used to leave assets to a beneficiary without impacting public benefits.
When properly drafted, a special needs trust preserves eligibility for Medicaid and Supplemental Security Income by keeping countable assets out of the beneficiary’s direct ownership and specifying allowable supplemental uses. Mistakes in funding or distribution can jeopardize benefits, so it is important to coordinate trust terms and trustee actions with benefit rules and to avoid direct transfers that might be treated as available resources by program administrators.
Trustees should be individuals or institutions with strong organizational skills, sound judgment, and the ability to keep clear records and make discretionary distributions in the beneficiary’s best interest. Families often name a trusted relative as initial trustee and designate a professional or corporate trustee as successor to provide continuity, impartial administration, and assistance with complex matters like investments and tax filings.
A pooled trust is managed by a nonprofit that pools resources for investment while maintaining separate accounts for each beneficiary. It can accept first-party funds and is often a practical choice for smaller settlements or when a family prefers the oversight of a nonprofit manager. Pooled trusts may have lower administrative costs and experienced management, but families should review fees, distribution policies, and the nonprofit’s governance before making a decision.
Settlement proceeds can be placed into a special needs trust through court approval or a structured assignment depending on settlement type. First-party funds require careful handling to comply with Medicaid payback rules, while third-party funds are typically directed into third-party trusts by family members. Proper funding steps should be taken immediately after a settlement to avoid benefit disruptions, and documentation must be preserved to demonstrate that the funds were transferred into the trust according to legal requirements.
First-party special needs trusts often include a payback provision to reimburse Medicaid for benefits provided after the beneficiary’s death, because those trusts are funded with the beneficiary’s own assets. Third-party trusts, funded by others like parents, typically do not require payback and can leave remaining assets to family or charitable beneficiaries per the grantor’s instructions, making them a preferred method for many legacy plans.
A trust should be reviewed at key life events and at least every few years to account for changes in benefits, health status, or family circumstances. Regular reviews ensure trust provisions continue to meet the beneficiary’s needs and remain compliant with evolving rules. Updates may be needed if laws change, if the trustee role needs to shift, or if new funding sources arise. Periodic consultation helps minimize legal surprises and preserve intended protections.
Trust funds can typically be used for supplemental needs such as adaptive equipment, transportation, therapies, education, and certain housing costs, provided distributions do not count as income or assets that would jeopardize benefits. Whether travel or education are permissible depends on the beneficiary’s current benefit rules and the trust terms. Trustees should document the benefit to quality of life and consult relevant program rules before authorizing larger expenditures.
A complete planning package usually includes the trust document, companion wills or pour-over wills, powers of attorney, and health care directives. These documents work together to ensure seamless management of financial and medical decisions for the beneficiary. Trustees also benefit from maintaining medical records, benefit award letters, and invoices to support distributions and demonstrate compliance with program rules when needed.
Begin with a confidential consultation to review the beneficiary’s medical and financial situation, current benefits, and family goals for long-term care and support. This assessment informs whether a first-party, third-party, or pooled trust is appropriate. After selecting a structure, we draft tailored documents, assist with funding, and provide trustee guidance to ensure distributions support the beneficiary without jeopardizing benefits.
