Special Needs Trusts FAQs

If you are a parent of a child with special needs, your estate planning should include a special needs trust.

Why? Because if you leave assets directly to your child, either in a will or through the intestacy statutes if you die without a will, the inheritance your child receives may jeopardize your child’s ability to receive benefits under government programs such as Supplemental Security Income (SSI) and Medicaid.

A special needs trust (SNT), also known as a supplemental needs trust, can help preserve your child’s eligibility for public benefits while providing for supplemental needs that will enhance his or her life. Below are answers to frequently asked questions about special needs trusts.

What is a special needs trust?

A SNT is a discretionary trust that holds the property of a disabled beneficiary and directs distributions to the beneficiary in a way that preserves his or her eligibility for public benefits.

What is the benefit of a special needs planning?

Supplemental Security Income (SSI) and Medicaid are government programs that offer support to disabled individuals.  SSI is a needs-based program that is only available to people who meet certain income and resource limitations. In many states, people receiving SSI automatically qualify for Medicaid, which can help pay for expensive medical care. Loss of these benefits can be catastrophic.

To qualify for SSI and Medicaid, a single person must own less than $2,000 of countable assets. Those with countable assets greater than $2,000 can lose their eligibility for benefits. That’s why it’s generally a bad idea to give assets, either as a gift or inheritance, directly to a loved one who receives government assistance. It is also why some parents actually consider disinheriting their children.

How does a SNT work?

Not all trusts will work to preserve a disabled beneficiary’s benefits. Support trusts, which direct distributions for the health, welfare, and support of a beneficiary, can disqualify a disabled beneficiary. This is because the assets in a support trust are counted as the beneficiary’s resource.

A SNT is a discretionary trust. It permits distributions from trust funds to supplement, not replace, a beneficiary’s government entitlements. To maintain eligibility for needs-based support, the beneficiary cannot have control over the assets in the SNT. The beneficiary cannot manage the assets. The beneficiary also cannot have the right to demand distributions of income or property from the SNT, name the Trustee or change the terms of the SNT. The Trustee has complete discretion about what distributions to make for the beneficiary.

Beneficiaries of properly drafted special needs trusts do not have legal claim to the property in the trust. That means that the trust assets are not countable resources and do not affect the beneficiaries’ eligibility for benefits. As a result, the beneficiaries can continue receiving government benefits, while still enjoying the benefits of the property in the trust for supplemental needs.

Who can serve as trustee of a special needs trust?

The Trustee can be a family member, friend, or private professional Trustee. In the case of a stand alone SNT, the person making the gift can also serve as trustee.

An SNT can help you provide for your child without jeopardizing his or her eligibility for benefits under SSI and Medicaid. If you are a parent of a child with special needs, a SNT should be an essential part of your estate planning.

How to set up a SNT?

If no assets will pass to your child until after you pass away, you may want to create a testamentary SNT. A testamentary SNT is a trust that will spring to life after you pass away. Provisions in your Will or Living Trust direct that all assets left to your child will be held in an SNT rather than being distributed outright or in a support trust. The trust will not exist until after you have died.

A stand-alone SNT is a trust that goes into effect immediately. This type of trust is beneficial if you want to start transferring funds immediately to the trust. It is also useful when multiple family members or friends want a vehicle to which they can contribute during their life or after their death. Rather than having to include special needs provisions in their planning, friends and family members can name the SNT as a beneficiary in their Wills or Trust. Also, because the trust will exist immediately, they can list the trust as a beneficiary of a life insurance policy, brokerage account, or retirement plan.

An attorney can explain all your options and help you determine which tool is right for you.

This article was initially published on October 11, 2010 and updated on January 8, 2024.