A Special Needs Trust lets you or your family save money without jeopardizing disability benefits. Here's how it works and whether it's right for you.
In this article, we'll cover:
- What a Special Needs Trust is
- Types of Special Needs Trusts
- How it protects benefits
- Setting up a trust
1. What a Special Needs Trust Is
Basic definition:
- Legal arrangement holding assets
- For benefit of disabled person
- Managed by trustee
- Doesn't count against SSI
Purpose:
- Supplement government benefits
- Pay for things benefits don't cover
- Maintain quality of life
- Protect eligibility
Key feature:
- Assets in trust not counted
- Beneficiary doesn't "own" assets
- Trustee controls distributions
- Benefits remain intact
What it can pay for:
- Education and training
- Recreation and entertainment
- Personal care items
- Supplemental medical care
- Transportation
Important: Special Needs Trusts can be complex and expensive to set up. Consider whether an ABLE account might meet your needs first.
2. Types of Special Needs Trusts
First-party (self-settled):
- Funded with beneficiary's own money
- From inheritance, lawsuit, etc.
- Must have Medicaid payback
- Age 65 limit for creation
Third-party:
- Funded by family or others
- No Medicaid payback
- More flexible
- Better for estate planning
Pooled trusts:
- Managed by nonprofits
- Lower cost to join
- Multiple beneficiaries
- Good for smaller amounts
Comparison:
| Feature | First-Party | Third-Party | Pooled | |---------|-------------|-------------|--------| | Funded by | Beneficiary | Others | Either | | Medicaid payback | Yes | No | Varies | | Setup cost | High | High | Lower | | Minimum amount | None | None | Varies |
3. How It Protects Benefits
SSI protection:
- Trust assets excluded
- Doesn't count toward $2,000 limit
- Distributions carefully managed
- Benefits continue
Medicaid protection:
- Similar exclusion
- Health coverage maintained
- Long-term care protected
- Must follow rules strictly
Key rules:
- Distributions must supplement, not replace
- No cash directly to beneficiary
- Pay providers directly
- Trustee must understand rules
What distributions can't cover:
- Basic food and shelter (with exceptions)
- Cash to beneficiary
- Anything that looks like income
- Items benefits already cover
4. Setting Up a Trust
Work with professionals:
- Special needs attorney
- Financial planner experienced with disabilities
- Trustee selection critical
- Ongoing management needed
Costs involved:
- Attorney fees: $2,000-$10,000+
- Ongoing trustee fees
- Tax preparation
- Administration costs
Choosing a trustee:
- Understands disability benefits
- Responsible and organized
- Will follow rules carefully
- Available long-term
Funding the trust:
- Direct contributions
- Life insurance proceeds
- Inheritance
- Settlement money
Trust vs. ABLE Account
When trust makes sense:
- Large amounts of money
- Family estate planning
- Complex needs
- Professional management wanted
When ABLE is better:
- Smaller amounts
- Want personal control
- Lower cost
- Simpler needs
Use both:
- ABLE for day-to-day
- Trust for major assets
- Complementary tools
- Consult professionals
How Purple Helps
Purple supports your financial management:
- Track daily expenses
- ABLE account integration
- Simple banking tools
- Benefit-friendly features
- Monitor your finances