A special needs trust reduces the risk that an inheritance or settlement will disqualify a beneficiary from essential public benefits by segregating assets under trust rules. It allows funds to pay for supplemental goods and services like therapies, transportation, and assistive technology, while also offering third-party legacy planning, creditor protection in certain contexts, and long-term financial stewardship.
Careful drafting protects access to Medicaid and other public assistance by outlining permissible expenditures and clarifying trustee discretion, ensuring that trust assets provide meaningful enhancements to the beneficiary’s life without counting as available resources, and creating durable rules for trustees to follow during administration and audits.
Hatcher Legal PLLC offers a client-first approach that begins with listening to family goals and evaluating how public benefits interact with available assets. The firm prepares documents that balance flexibility and compliance, explains trustee responsibilities, and lays out funding options that minimize risk and support the beneficiary’s well-being.
Our ongoing services include reviewing trust terms with changing law, assisting with amendments where appropriate, advising on successor trustee transitions, and coordinating with tax and financial advisors to adjust funding strategies and maintain alignment with the family’s broader estate plan and caregiving arrangements.
A special needs trust is a legal instrument that holds assets for the benefit of a person with disabilities while preserving eligibility for means-tested government benefits. By placing funds into the trust under carefully drafted terms, the trust pays for supplemental needs such as therapies, transportation, or equipment while ensuring resource limits for Medicaid and Supplemental Security Income remain satisfied. Proper trust language and administration are essential to maintain benefit access. Trusts are tailored to the beneficiary’s circumstances and integrate with other estate planning tools to address long-term care and financial security. Families benefit from understanding allowable distributions, trustee duties, and how trust assets are documented for audits or reviews to avoid unintended benefit loss.
A first-party special needs trust is funded with the beneficiary’s own assets and generally must include a payback clause to reimburse Medicaid after the beneficiary’s death. A third-party trust is funded by someone else and typically avoids payback requirements, offering greater flexibility in distributions for future beneficiaries. A pooled trust is managed by a nonprofit that pools funds for investment while maintaining individual accounts, often used when private family funding is not feasible. Each type has different drafting, funding, and administrative implications that families should evaluate based on asset sources, goals, and the need for professional management.
Funding a special needs trust requires directing assets into the trust rather than to the beneficiary directly. Typical funding sources include third-party gifts, bequests, life insurance proceeds by naming the trust as beneficiary, and structured settlement payments. For first-party funds like settlements, placing proceeds into an appropriate trust at the time of receipt prevents the assets from counting against resource limits. Careful coordination with settlement counsel and financial institutions ensures transfers comply with benefit rules and trust terms to avoid eligibility disruptions.
A trustee should be someone who can manage finances responsibly and understands the beneficiary’s needs, which might be a trusted family member, a professional fiduciary, or a nonprofit trustee. Trustee responsibilities include managing investments prudently, making distributions that supplement but do not replace public benefits, maintaining meticulous records, and communicating with benefit agencies when necessary. The trustee must follow trust terms, exercise prudent judgment for discretionary spending, and prepare for successor trustee transitions to ensure continuity of support for the beneficiary.
First-party special needs trusts usually include a payback provision requiring that remaining assets reimburse Medicaid for benefits paid to the beneficiary during their lifetime, so families should anticipate this outcome when planning. Third-party trusts generally do not have payback requirements, allowing leftover funds to pass to other beneficiaries. Understanding payback implications helps families structure funding and succession plans, and in some cases life insurance or other third-party funding can preserve family inheritances while satisfying Medicaid rules.
Special needs trusts commonly cover housing, educational enrichment, medical costs that are not reimbursed by public programs, assistive technology, transportation, and recreational activities that improve quality of life. Trustees must ensure expenditures are supplemental and documented, avoiding payments that might be considered maintenance or basic needs covered by government programs. Thoughtful budgeting and recordkeeping support the eligibility conversation and ensure that trust funds are used to meaningfully enhance the beneficiary’s daily living and opportunities.
Trusts should be reviewed periodically and whenever there is a significant life event, policy change, or shift in the beneficiary’s needs. Reviews help update trustee designations, amend distribution terms if lawful, and ensure funding strategies remain effective. Regular check-ins with legal counsel preserve trust integrity, allow adaptation to changes in Medicaid rules or family circumstances, and help trustees stay current on best practices for administration and documentation.
Trustees should maintain detailed records of all receipts, disbursements, invoices, and distribution justifications to support compliance with benefit agency inquiries. Documentation should link expenditures to the beneficiary’s supplemental needs and include copies of receipts, contracts for services, and written explanations for discretionary payments. Organized records aid in defending distributions during audits and provide transparency for family members and successor trustees, reducing risk of disputes and protecting benefit eligibility.
Special needs trusts should be integrated with wills, durable powers of attorney, health care directives, and beneficiary designations to create a cohesive estate plan. Wills can pour assets into third-party trusts, powers of attorney can assist with financial decisions affecting trust funding, and life insurance can be structured to fund trusts without direct inheritance. Coordination ensures that assets move into the trust appropriately and that decision-makers have authority to manage affairs consistent with the family’s planning goals.
Hatcher Legal PLLC assists Washington families by evaluating benefit eligibility, recommending the appropriate trust type, drafting precise trust documents, and coordinating funding steps with settlement counsel and financial institutions. The firm advises trustees on permissible distributions, recordkeeping, and communication with benefit agencies, providing practical, ongoing support to ensure that trust administration preserves benefits and enhances the beneficiary’s quality of life. We also review plans periodically to adapt to legal changes and evolving family needs.
