Special Needs Trusts: Protecting What Matters Most

When you have a loved one with special needs, taking care of them isn’t just about managing finances — it's a lifelong commitment, one rooted in love, duty, and a deep sense of responsibility. Planning for their future can feel overwhelming, but one powerful tool helps ensure they’ll be protected long after you're no longer there to personally oversee things: a Special Needs Trust (SNT).

A Special Needs Trust serves two important roles. It helps preserve your loved one’s eligibility for essential government benefits, and it protects the assets you leave behind. Having only a will won’t accomplish these goals. Here’s how an SNT works — and what you should think about as you get started.

Preserving Vital Government Benefits

Many families rely on government programs to meet the basic needs of a person with disabilities — things like medical care, therapy, home aides, and even housing assistance. However, programs like Supplemental Security Income (SSI) and Medicaid have strict financial limits. SSI provides monthly income for individuals with limited financial resources, and in most states, qualifying for SSI also opens the door to Medicaid. Medicaid is incredibly broad, covering not just medical needs, but also services like in-home care, day programs, assistive technologies, and other daily support that private insurance often doesn’t touch.

If your loved one suddenly receives money, whether from a gift, inheritance, or settlement, they could lose those critical supports. That’s where an SNT makes all the difference. Instead of assets being counted against your child or family member, they’re held in trust for their benefit. The trust legally owns the assets, not the individual. This keeps them eligible for needs-based programs that are often vital to their quality of life.

Preserving the Assets You Leave Behind

At its core, a trust is a legally binding set of instructions for how assets should be used. When someone establishes a Special Needs Trust, they're creating clear, enforceable guidelines for how money can (and cannot) be spent.

Without a trust, there’s a real risk that money could be mismanaged or even lost, even by people you once trusted. A properly drafted SNT not only protects your loved one from losing benefits, it also shields them from financial exploitation and ensures that the resources set aside for them are used exactly as intended.

What Can a Special Needs Trust Pay For?

The beauty of a Special Needs Trust is that it can dramatically enhance quality of life. While government benefits will cover the basics, the trust can be used to pay for things that go beyond mere survival — things that bring comfort, dignity, and joy.

That could mean modifications to make a home wheelchair accessible, a specialized van for transportation, therapies or education programs that Medicaid won’t fund, or the services of a personal aide, housekeeper, or companion. It can even cover out-of-pocket medical expenses or equipment that government programs don't provide.

The point is to fill the gaps, allowing your loved one to live not just safely, but fully.

How a Special Needs Trust Works in Practice

Setting up a Special Needs Trust follows a basic flow. First, the grantor (you) creates the trust document with the help of an attorney. Next, the trust is funded — this could happen during your lifetime through gifts, insurance policies, or from a settlement your child received, or after your death through an inheritance. Once funded, a trustee steps in to administer the trust, making distributions for the benefit of the special needs beneficiary (FBO).

When your loved one eventually passes away, any assets remaining in the trust are distributed to what are called "remainder beneficiaries" — often siblings, other family members, or charities that are close to your heart.

Understanding the Different Types of Special Needs Trusts

Broadly speaking, there are two major types — and the difference centers around whose assets are funding the trust.

A First-Party Special Needs Trust is funded with the beneficiary’s own money — maybe from a personal injury settlement or an inheritance. These trusts must be irrevocable, and after the beneficiary’s death, any remaining assets typically reimburse Medicaid for services paid during the person’s lifetime first before anything passes to the remainder beneficiaries.

A Third-Party Special Needs Trust is funded with someone else's money — usually a parent, grandparent, or other family member. These trusts don’t require Medicaid reimbursement and can be established during the grantor’s lifetime or through an estate plan after death, and is a very common choice for parents planning ahead.

Choosing the Right Trustee

This is THE critical decision. The trustee you pick will have a lot of power — and a lot of responsibility. They’ll be in charge of investing the trust assets, following complex rules to maintain benefit eligibility, and keeping detailed records to satisfy both legal requirements and family expectations.

Some families choose a trusted relative or friend who knows the beneficiary well. Others hire a professional trustee, like a bank, law firm, or trust company, who specializes in administering special needs trusts. Sometimes, a combination — a co-trusteeship — offers the best of both worlds. There’s also the option of using a pooled trust, where a nonprofit organization manages funds for multiple beneficiaries.

Adding a Trust Protector — someone who has the authority to monitor the trustee and make changes if necessary — can provide an extra layer of security and peace of mind.

Working with the Right Attorney

Creating a Special Needs Trust isn’t a do-it-yourself project. Laws surrounding trusts — especially those that protect eligibility for SSI and Medicaid — vary from state to state and are highly detailed. A misstep in the setup could have serious consequences.

That’s why it’s critical to work with an attorney who knows the ins and outs of Special Needs Planning. We work closely with a network of trusted attorneys who specialize in this area and would be happy to make an introduction if you need one.

Also, if you ever move to another state, don’t forget to have your trust reviewed. Small differences in state laws can impact how the trust functions.

Important Questions to Think About

Before setting up a Special Needs Trust, it’s a good idea to reflect on a few key questions:

• What level of care will your loved one need, both now and in the future?

• How long will the trust need to last — is it for a lifetime, or a shorter period?

• What assets do you plan to contribute to fund the trust?

• What types of expenses should the trust be used to cover?

• Who would be the right person (or people) to manage the trust as trustee?

• If there are assets left over when the trust ends, who should receive them?

Answering these questions now can prepare you for a meeting with your attorney.

Final Thoughts

Setting up a Special Needs Trust isn’t just a legal transaction — it’s a lasting gift of protection, dignity, and support for someone you love deeply. With the right planning today, you can help ensure that your loved one lives a stable, enriched, and meaningful life, no matter what the future holds. Contact us to talk with one of our advisors and think through the important questions I mentioned. We’d love to come alongside you as you consider what’s best to care for your loved ones.