Special Needs Trusts FAQs: Answers for Parents of Children with Special Needs

If you are a parent of a child with special needs, a special needs trust (SNT) should be an essential part of your estate planning. Without one, leaving assets directly to your child—whether through a will or by default under intestacy laws—could jeopardize their eligibility for critical government benefits like Supplemental Security Income (SSI) and Medicaid.

A special needs trust (also called a supplemental needs trust) helps preserve your child’s access to public benefits while providing financial resources 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 special needs trust is a legal arrangement that holds and manages assets for a disabled beneficiary without affecting their eligibility for needs-based government assistance. The trust is managed by a trustee, who has full discretion over distributions to ensure the beneficiary’s benefits remain intact.

Why is Special Needs Planning Important?

Supplemental Security Income (SSI) and Medicaid are government programs that offer provide financial and medical assistance to disabled individuals who meet strict income and asset limits. 

• SSI (Supplemental Security Income) is a federal program that provides monthly financial assistance to disabled individuals with limited income and resources.
• Medicaid is a health insurance program for low-income individuals. 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.

How Can an Inheritance Affect Benefits?

To qualify for SSI and Medicaid, a single person must own less than $2,000 in countable assets. Any inheritance or gift over this limit could disqualify them from 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.

Many parents, in an effort to preserve benefits, consider disinheriting their child, but this approach leaves the child financially vulnerable. A special needs trust solves this issue by protecting assets while ensuring continued access to government aid.

How Does a Special Needs Trust 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.

How Does an SNT Preserve Benefits?

A special needs trust is a discretionary trust that permits distributions that supplement, not replace, the beneficiary’s government benefit. To maintain eligibility for needs-based support:

• The beneficiary cannot have control over the assets in the SNT or demand distributions
• The trustee has complete discretion over what distributions to make for the beneficiary
• Funds can only used only for supplemental expenses not covered by government programs.

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 is responsible for managing the trust and making discretionary distributions. The trustee can be:

• A family member, such as a parent or sibling.
• A friend.
• A professional trustee, such as a trust company or attorney.

In the case of a stand-alone special needs trust, the person creating the trust can also serve as the initial trustee.

How to set up a SNT?

There are two primary ways to create a special needs trusts:

1. Testamentary Special Needs Trust

• Created through a will or living trust and takes effect after the parent’s death.
• Assets are directed into the trust upon the parent’s passing.
• The child does not receive assets outright, protecting their benefits.

2. Stand-Alone Special Needs Trust

• Created during the parent’s lifetime and takes effect immediately.
• Allows family members and friends to contribute funds.
• Can be named as the beneficiary of life insurance policies, brokerage accounts, and retirement plans.

A stand-alone SNT is especially useful if you want to transfer assets now or if other family members plan to contribute to your child’s future..

How to Set Up a Special Needs Trust

Setting up a special needs trust requires careful legal planning to ensure compliance with federal and state laws. An estate planning attorney can help:

• Draft a legally sound trust document.
• Ensure the trust meets SSI and Medicaid requirements.
• Determine the best type of trust based on your family’s needs.

Special Needs Trust FAQs: Common Questions Answered

Can My Child Control Assets in an SNT?

No, to maintain eligibility for government benefits, the beneficiary cannot have direct control over the trust assets. The trustee has discretionary authority to make distributions.

What Can Special Needs Trust Funds Be Used For?

Funds from an SNT can be used for supplemental expenses that enhance quality of life, such as:

• Medical and dental care not covered by Medicaid.
• Educational programs and vocational training.
• Recreational activities and travel.
• Therapy and assistive devices.

Can Other Family Members Contribute to an SNT?

Yes. A stand-alone special needs trust allows family members and friends to contribute during their lifetime or as part of their estate plan.

Will an SNT Affect My Child’s SSI or Medicaid?

No, as long as the trust is properly drafted, assets held in an SNT are not counted as a personal resource and will not affect government benefits.

Protect Your Child’s Future with a Special Needs Trust

A special needs trust ensures that your child receives financial support without risking government benefits. By setting up an SNT, you can secure their future while maintaining their quality of life.

Consult a special needs planning attorney to discuss the best special needs trust option for your child.

This article was initially published on October 11, 2010 and updated on February 12, 2025.