Special Needs Trust

A special needs trust (sometimes called a supplemental needs trust) is a legal tool designed to hold and manage assets for a person with disabilities while protecting their eligibility for means-tested government benefits like Medicaid and Supplemental Security Income (SSI).

Purpose:Many public benefits have strict limits on how much income or assets a person can have. A special needs trust keeps assets out of the beneficiary’s name so they don’t count toward those limits, while still allowing the money to be used for their benefit.

How it works:

• A trustee (an individual or institution) manages the money.

• The beneficiary (the person with disabilities) does not directly control the funds.

• The trustee uses the money to pay for approved expenses that enhance the beneficiary’s life.
  

What it can pay for:Funds are typically used for “extras” not covered by government programs, such as:

• Medical and dental care not covered by insurance

• Therapy, rehabilitation, and caregiving services

• Education, job training, and assistive technology

• Housing-related costs (with some restrictions)

• Travel, hobbies, and personal items
  

Types of special needs trusts:

1. First-party trust – Funded with the beneficiary’s own money (e.g., from a settlement or inheritance). Usually must include a provision that remaining funds reimburse the state for Medicaid after the beneficiary’s death.

2. Third-party trust – Funded by someone else (like parents or relatives). No Medicaid payback requirement, making it a common estate planning tool.

3. Pooled trust – Managed by a nonprofit organization that combines funds from multiple beneficiaries but tracks each person’s share separately.
   

Key benefit:It allows someone with disabilities to have financial support for a better quality of life without losing essential public assistance.