A special needs trust preserves access to vital public programs while providing extra support from private funds, improving a beneficiary’s life through therapies, education, recreational activities, and transportation. Trusts reduce caregiver stress by creating a legal framework for decision making, clarifying financial roles, and ensuring that resources are used consistently with the beneficiary’s needs and long-term care goals.
A carefully drafted trust and related documents help maintain eligibility for Medicaid and Supplemental Security Income, shielding critical benefits that cover healthcare, long-term services, and basic living expenses. Properly worded distribution provisions and trustee guidance prevent inadvertent transfers that could otherwise result in loss of benefits and financial hardship.
Hatcher Legal focuses on practical estate planning solutions that align with clients’ goals and regulatory requirements. Our process emphasizes clear communication, personalized drafting, and collaborative planning with healthcare and financial professionals to ensure special needs trusts operate predictably and support a beneficiary’s lifelong needs.
We recommend periodic reviews to address legal or financial changes, beneficiary needs, or family circumstances. When necessary, we assist with trust amendments, successor trustee substitutions, or funding adjustments to ensure that the trust remains aligned with the family’s objectives and current regulatory requirements.
A special needs trust is a legal arrangement that holds funds for a person with disabilities while preserving eligibility for means-tested public benefits. It permits distributions for quality-of-life items and services that government programs do not cover, such as non-covered therapies, assistive technology, transportation, and enrichment activities. A trust benefits the person with disabilities and their family by creating a formal structure for financial support and decision-making. It clarifies trustee duties, protects benefits, and helps ensure that resources are used in a way that complements public assistance and supports long-term wellbeing.
A properly drafted trust prevents the assets it holds from being counted as the beneficiary’s personal resources for Medicaid and Supplemental Security Income. Distribution rules are critical: payments that substitute for basic needs may count against benefits, while payments for approved supplemental items typically do not. Because state rules vary, careful drafting and administration are required to maintain eligibility. Trustees must document distributions and sometimes coordinate with benefits offices to confirm that trust payments are structured and used in ways that do not disrupt benefit awards.
A first-party trust is funded with the beneficiary’s own assets and generally must include a provision to reimburse the state for Medicaid payments after the beneficiary’s death. This kind of trust is often used when a beneficiary receives a settlement or inherits directly. A third-party trust is funded by someone else, such as a parent or grandparent, and typically does not require state payback. Third-party trusts offer donors more flexibility in directing remaining funds and avoiding reductions in the beneficiary’s public benefits during life.
A family member can serve as trustee, and many families prefer this for personal knowledge of the beneficiary’s needs. Trustees manage investments, make distribution decisions consistent with the trust terms, keep records, and interact with benefits agencies when necessary to avoid jeopardizing eligibility. Serving as trustee requires diligence and honesty. Trustees should document the rationale for distributions, maintain accurate financial records, and consider professional assistance for investment decisions or complex benefit interactions to reduce administrative burdens and legal risk.
Settlement proceeds and inheritances intended for a person with disabilities should be placed into a properly drafted trust to preserve benefits. Routing funds through a trust ensures they are not counted as the beneficiary’s personal resources and allows those funds to supplement benefits for items such as therapy, equipment or educational supports. The trust type depends on the source of funds and the family’s goals. For settlements or inheritances received by the beneficiary, a first-party trust with appropriate payback language may be required. When funds come from family members, a third-party trust is often preferred to avoid payback requirements.
A pooled trust is managed by a nonprofit that maintains individual accounts for beneficiaries while investing pooled resources collectively. It can accept first-party funds and is useful when a family prefers a nonprofit to handle administration or when a beneficiary’s funds are modest and would benefit from pooled investment and lower administrative costs. Pooled trusts often include a remainder provision that allows the nonprofit to recover remaining administrative costs and sometimes requires state reimbursement for Medicaid. Families should review pooled trust terms to ensure account rules align with the beneficiary’s needs and the family’s intentions.
First-party special needs trusts generally include a payback provision requiring that remaining funds be used to reimburse the state for Medicaid benefits provided to the beneficiary after death. This federal requirement ensures Medicaid can recover expenses when funds were originally the beneficiary’s property. Third-party trusts usually avoid payback requirements since the assets never belonged to the beneficiary. Families should carefully choose the trust vehicle and review payback language to understand how remaining funds will be distributed or used at the beneficiary’s death.
Trusts can be funded with cash, settlement proceeds, life insurance proceeds, bank accounts, and in some cases, retirement benefits when properly structured. Funding steps include retitling accounts, changing beneficiary designations where appropriate, and transferring settlement proceeds directly into the trust to avoid counting those assets as the beneficiary’s personal resources. Because improper funding can jeopardize benefits, families should follow precise procedures and consult counsel to complete transfers correctly. We help clients identify funding sources and implement the transfer steps needed to maintain eligibility and achieve planning objectives.
A special needs trust should be reviewed whenever there are material changes in the beneficiary’s health, family circumstances, funding sources, or relevant benefit rules. Regular reviews help ensure distribution language and administration practices remain aligned with current laws and the beneficiary’s evolving needs. Periodic review intervals vary, but many families revisit documents after major life events or every few years. Updates may include trustee substitutions, funding adjustments, or amendments to address new care plans or financial resources.
Costs to create a special needs trust vary depending on complexity, whether additional estate documents are needed, and whether ongoing administration is provided. One-time drafting fees cover legal research and tailored drafting, while administration fees depend on trustee arrangements and reporting requirements. We provide transparent estimates based on the family’s specific circumstances and can discuss cost-effective options, including pooled trusts or using family trustees with attorney support for key actions. Our goal is to balance affordability with careful planning that preserves benefits and meets the beneficiary’s needs.
