A special needs trust allows a person to create a trust for a disabled child without limiting their eligibility for government benefits. Normally when a person who is receiving government benefits such as social security or Medicaid, any gift or an inheritance can reduce or completely eliminate their eligibility for these programs.

What are the Benefits to a Special Needs Trust?

Many people make the mistake of leaving their disabled loved ones assets through a will. But when they receive these assets or lump sum of money, they lose eligibility on the governmental funds and programs. While a gift or inheritance can maybe lessen their need for government assistance, but if the gift is not significantly large and cannot last a long time then your loved one will need more than an inheritance to survive. The benefits of using a special needs trust is to avoid your loved ones who qualify for Medicaid and SSI from losing eligibility in these programs when they acquire assets from a will. To avoid losing eligibility for SSI and Medicaid, you create a special needs trust or supplemental needs trust. A special needs trust or supplemental needs trust allows a parent or guardian to set aside property for the benefit of their disabled child after the parent has become deceased or disabled.  They are also commonly used to distribute inheritances or even proceeds from a personal injury settlement on behalf of the disabled person.

How Can a Loved One Access Special Needs Trust?

Special needs trusts can be accessed through a trustee. The trustee can use the trust assets in the special needs trust to purchase supplies for your loved one. The trustee can buy services and products, like personal care supplies, vacations, home items, furniture, medical and dental expenses, education, vehicles, physical therapy, and other necessities.

What are the Requirements for Special Needs Trust Documents?

Special needs trusts provide additional benefits or luxuries for the child that would not otherwise be available using other types of trusts. However, like any trust, special needs trusts must follow the requirements of trust laws and have special wording in order to be valid. Trust laws may vary from state-to-state, but a special needs trust document should include the following wordings and features to be legally enforceable:
  • The document should be titled “Irrevocable Special Needs Trust” or “Supplemental Needs Trust”
  • It should include your child’s legal name
  • The language in the document should make it impossible for your disabled child to demand a different distribution of the trust funds (i.e., it should only be made for the purpose of benefiting your child and not others)
  • There should be language in the document that states the special needs trust intends to provide “supplemental and extra care” beyond what the government
  • The trustee appointed in the document must have full discretion to manage and spend the trust assets according to the trust purpose
  • The trust is to be administered in a way that does not jeopardize the child’s eligibility for government benefits or assistance
  • Must specify that the trust is not intended to be simply a support trust, but that the funds are intended solely for the purpose of supplementing government benefits

How Are Special Needs Trust Funded?

Special needs trusts may be funded through various sources, such as a will, gifts from friends, or relatives that are deposited directly into the trust, or through “survivorship” life insurance policies. No matter where the money comes from, the important thing is that it is put into the trust for the benefit of the recipient instead of giving the money to the recipient directly. If you have questions regarding setting up a special needs trust, it may be necessary to consult with a lawyer for advice on drafting the documents.  Alternatively, a special needs trust can often be established through the guidance of a structured settlement planner.

What is a "Letter of Intent" for a Special Needs Trust?

You may wish to supplement your special needs trust document with a “letter of intent” which further defines your intentions regarding the use of the trust funds.  A letter of intent provides further information about your child to family members, relatives, and other persons who may be involved with the child. Think of this as a detailed guide/manual to those who will take care of your child when you are no longer able. You may choose to include the following information in your letter of intent:
  • Information about your child
  • Financial instructions
  • Medical history and any special considerations
  • Important social contacts
  • The child’s personality disposition, skills, hobbies, and abilities
  • Your child’s various goals and aspirations
But a letter of intent can include any other information that you might feel is relevant, including the child’s daily schedule and any religious instruction you wish your child to continue.  Such a letter can help prevent any future misunderstandings regarding the trust.

What are the Pros and Cons of a Special Needs Trust?

There are many benefits of having a special needs trusts and as well as some disadvantages that you should consider. Advantages of a Special Needs Trust:
  • Can keep a person eligible for governmental programs such as SSI and Medicaid
  • Funds used on a special needs trust are tax deductive
  • Special needs trust ensures that the funds are used for a person with disability and not other means
  • Funds are not available for creditors or for paying judgments and only used on the care of a person with disability
Disadvantages of a Special Needs Trust:
  • There are annual fees and high costs to set up a special needs trusts
  • The beneficiary has little control over the use of their money since there is a trustee involved
  • Certain funds must be used only to pay back Medicaid

Do I Need a Lawyer for a Special Needs Trust?

Anyone can create a special needs trust, as long as the required language is included. However, special needs trusts are very unique trusts that apply only under very specific circumstances.  You may wish to hire an experienced estate planning lawyer to assist you in planning, drafting, and reviewing the trust documents and letter of intent.