What Is a Special Needs Trust?

A Special Needs Trust is a legal tool that allows families to set aside money for a person with disabilities without affecting eligibility for government benefits such as SSI and Medicaid.

Families often worry about how to provide financial support for a loved one with disabilities while preserving access to important government benefits. A Special Needs Trust is one of the most common planning tools used to accomplish this goal.

Short Answer

A Special Needs Trust holds money for a person with disabilities while allowing them to continue receiving benefits like Supplemental Security Income (SSI) and Medicaid. The trust is managed by a trustee who uses the funds for expenses that improve the beneficiary’s quality of life.

How a Special Needs Trust Works

Instead of giving money directly to the person with disabilities, funds are placed into a trust that is managed by a trustee. Because the beneficiary does not directly control the assets, the funds are generally not counted toward SSI resource limits.

The trustee can use the money to pay for many things that improve the beneficiary’s quality of life, including:

• Medical expenses
• Therapies and specialized care
• Education and training
• Transportation
• Technology and assistive devices
• Recreation and travel

Types of Special Needs Trusts

First-Party Special Needs Trust

A first-party trust is funded with money that already belongs to the person with disabilities. This may occur when someone receives an inheritance, lawsuit settlement, or other funds.

These trusts typically include a Medicaid payback provision after the beneficiary’s death.

Third-Party Special Needs Trust

A third-party trust is funded with money from parents, grandparents, or other relatives. These trusts are commonly used as part of estate planning and generally do not require Medicaid payback.

Example

A grandmother leaves $50,000 to her grandson who receives SSI. If the money is given directly to him, he could lose eligibility for benefits because the SSI asset limit is $2,000.

Instead, the funds could be placed in a Special Needs Trust managed by a trustee who distributes funds for appropriate expenses.

Have Questions?

You can ask questions about Special Needs Trusts, SSI rules, inheritances, and disability planning using the Ask Tom AI assistant.

Author: Tom Sannicandro, JD, PhD
Founder of SpecialNeedsTrustsOnline and Disability Resources for Families