A special needs trust holds property for a person with a disability in a way which does not count against their eligibility for means-tested public benefits (e.g., Supplemental Security Income and Medicaid). Without such a trust, an inheritance left directly to a beneficiary who receives these benefits can disqualify them until the money is spent down, which may undo years of careful planning by the family.
How the Trust Works
The trustee uses trust funds to pay for things that public benefits do not cover (e.g., education, therapies, travel, equipment, recreation and personal care items) and generally makes payments to the provider instead of handing cash to the beneficiary. The trust instrument gives the trustee discretion over distributions, and the trustee must understand which distributions can reduce benefits. Elkhorn Law provides written guidance to every trustee we name on what the trust may and may not pay for.
Two Kinds of Special Needs Trust
Third-party trusts are funded with a parent’s, grandparent’s or other family member’s property. These are the most common, and they can be created as a stand-alone trust during life or as a trust inside a Will or Trust which takes effect at death. Whatever remains when the beneficiary dies can pass to other family members.
First-party trusts are funded with the beneficiary’s own property (e.g., a personal injury settlement or an inheritance that was not planned for). Federal law permits these trusts, but whatever remains at the beneficiary’s death must first repay the state for the Medicaid benefits provided during their life.
We also discuss ABLE accounts with families, since an ABLE account can work alongside a special needs trust for day-to-day expenses.
Planning Ahead
A child who does not receive benefits today may need them as an adult. If any of your beneficiaries has a disability, or might, tell us at the start of the estate planning process so that the plan can provide for it.