How to Set Up a Special Needs Trust (And Why It Matters)

When planning for the long-term care and financial stability of a loved one with disabilities, establishing a Special Needs Trust (SNT) is one of the most important steps families can take. Not only does it help protect the beneficiary’s eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI), but it also ensures that they can enjoy a better quality of life — without jeopardizing essential support.

At The Real Estate Law Firm, we frequently help families navigate the complex legal landscape of special needs planning. Here's a comprehensive guide to help you understand what a Special Needs Trust is, why it's important, and how to set one up effectively.

What is a Special Needs Trust?

A Special Needs Trust is a legal arrangement that allows assets to be held on behalf of a person with disabilities without disqualifying them from government assistance programs. These programs often have strict income and asset limits. For example, to qualify for SSI, an individual typically must have less than $2,000 in countable assets.

By placing assets in a trust rather than in the individual’s name, the beneficiary can maintain access to these vital public benefits while also benefiting from the funds in the trust for non-covered expenses like:

• Education

• Transportation

• Recreation

• Personal care attendants

• Out-of-pocket medical costs

  
  

There are several types of SNTs, each with specific purposes and funding sources.

Types of Special Needs Trusts

1. First-Party Special Needs Trust

Funded with the beneficiary’s own assets, such as a personal injury settlement or inheritance. This trust must be established before the beneficiary turns 65 and includes a Medicaid payback provision upon the beneficiary’s death.

2. Third-Party Special Needs Trust

Established and funded by someone other than the beneficiary (usually parents or other relatives). These trusts do not require a Medicaid payback clause, allowing remaining assets to pass to other heirs.

3. Pooled Trust

Managed by nonprofit organizations that pool the resources of multiple beneficiaries for investment purposes, while maintaining separate accounts for each. This is a good option for families without someone to serve as trustee.

Why a Special Needs Trust Matters

At The Real Estate Law Firm, we’ve seen countless families benefit from the protection and peace of mind that an SNT offers. Here’s why it matters:

1. Preservation of Benefits

Government aid is often a lifeline for individuals with disabilities. Even a modest inheritance can result in the loss of these critical benefits. An SNT shields the assets from being counted against eligibility.

2. Long-Term Financial Management

SNTs are administered by trustees who ensure the money is used appropriately. This provides structured oversight and prevents financial exploitation or mismanagement.

3. Enhanced Quality of Life

While public programs cover basic needs, an SNT can fund a richer, more fulfilling life—vacations, hobbies, private caregiving, and more.

4. Continuity of Care

An SNT can be a central component of a broader care plan. With guidance from The Real Estate Law Firm, you can integrate housing, legal guardianship, and estate planning to support your loved one comprehensively.

How to Set Up a Special Needs Trust

Establishing an SNT involves multiple legal steps. It’s crucial to work with an experienced attorney who understands disability law and estate planning.

Step 1: Identify the Type of Trust You Need

Determine whether the trust will be funded with your own assets or the beneficiary’s. This will dictate whether a first-party or third-party trust is appropriate.

Step 2: Choose a Trustee

The trustee manages the trust and makes disbursements on behalf of the beneficiary. This should be someone who is financially responsible and understands the legal obligations involved. In some cases, a professional or corporate trustee may be appropriate.

Step 3: Draft the Trust Document

This legal document specifies the trust’s purpose, the powers of the trustee, and how the assets are to be used. At The Real Estate Law Firm, we tailor trust documents to comply with both federal guidelines and state-specific regulations.

Step 4: Fund the Trust

Assets can include cash, life insurance proceeds, real estate, and investments. It’s important that these are properly titled to the trust.

Step 5: Notify Agencies

Once the trust is active and funded, notify Social Security and Medicaid to ensure that eligibility is not affected. The Real Estate Law Firm assists with this process to prevent administrative errors that could jeopardize benefits.

Step 6: Review and Update Regularly

As laws change or family circumstances evolve, it’s critical to revisit the trust. We recommend annual reviews to ensure continued compliance and effectiveness.

Common Mistakes to Avoid

• Naming the beneficiary directly in a will – This can unintentionally disqualify them from government benefits.

  
  

• Failing to name a successor trustee – If the primary trustee becomes unable to serve, a plan must be in place.

  
  

• Mixing assets improperly – Especially with first-party trusts, improper funding can trigger penalties.

  
  

• DIY trusts without legal review – Boilerplate or online forms may not meet legal requirements in your state.

  
  

To avoid these pitfalls, trust the professionals at The Real Estate Law Firm to guide you.

The Role of The Real Estate Law Firm

We specialize in comprehensive estate planning, including the creation and administration of Special Needs Trusts. Our attorneys understand the emotional and financial complexities involved and are committed to providing compassionate, strategic guidance.

Whether you're just beginning your planning journey or looking to update an existing trust, The Real Estate Law Firm is here to help secure your loved one’s future with clarity and care.

FAQs

1. What is the primary purpose of a Special Needs Trust?

To protect a disabled individual’s eligibility for government benefits while allowing them to receive supplemental financial support.

2. Who can establish a Special Needs Trust?

Parents, grandparents, legal guardians, or courts can establish an SNT. The type of trust will determine who can create and fund it.

3. Can the trust be used to pay rent or buy a home?

Yes, but payments for housing expenses must be structured carefully to avoid reducing SSI benefits. Consult The Real Estate Law Firm for guidance.

4. What happens to the trust assets when the beneficiary dies?

For first-party trusts, any remaining funds may be used to reimburse Medicaid. For third-party trusts, assets can pass to other heirs.

5. Can an SNT own real estate?

Absolutely. Many families use SNTs to provide stable housing. Our team at The Real Estate Law Firm can help structure these purchases.

6. What is a trustee’s role?

The trustee manages the trust’s assets, ensures funds are used appropriately, and maintains legal compliance.

7. Can I serve as both trustee and parent?

Yes, though some families prefer to name a neutral third party to avoid conflicts of interest.

8. Is a Special Needs Trust revocable?

Typically, no. Most SNTs are irrevocable to ensure legal protection and eligibility for benefits.

9. How much does it cost to set up an SNT?

Costs vary depending on complexity and state law. At The Real Estate Law Firm, we offer transparent, customized pricing based on your needs.

10. Why should I hire an attorney instead of doing it myself?

The legal and financial rules around SNTs are complex. Mistakes can have serious consequences. Working with The Real Estate Law Firm ensures that your trust is legally sound and tailored to your situation.