What Is a Special (Supplemental) Needs Trust?

Special needs trusts (or supplemental needs trusts) allow a disabled loved one to receive gifts, lawsuit settlements, or other funds without losing their eligibility for certain government benefits programs.

These trusts are designed to hold ownership of the funds so they will not be considered counted income or assets when determining eligibility for benefits, such as Supplemental Security Income (SSI) or Medicaid.

How a Special Needs Trust Works

As their name implies, special needs trusts do not provide funds for basic support, but instead pay for comforts and luxuries that could not be paid for by public assistance funds. These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life. However, the trustee can use trust funds for food, clothing, and shelter if the trustee decides doing so is in the beneficiary's best interest despite a possible loss or reduction in public assistance. 

Your chosen trustee may be a family member, professional, or non-profit agency. Be sure to choose a trustee who has your loved one's best interest at heart.

What a Special Needs Trust Can Pay For

Special needs expenses can include additional medical and dental expenses, annual independent check-ups, necessary or desirable equipment (such as specially equipped vans), training and education, insurance, transportation, and essential dietary needs. If the trust is sufficiently funded, your loved one can also receive spending money, electronic equipment and appliances, computers, vacations, movies, a companion, and other self-esteem and quality-of-life enhancing expenses.

Creating and Funding the Trust

Often, special needs trusts are created by a parent or other family member for a child with special needs (even though the child may be an adult by the time the trust is created or funded). Such trusts also may be set up in a will as a way for an individual to leave assets to a disabled relative. In addition, disabled individuals can often create the trust themselves, depending on the program benefits they currently receive or expect to receive.

These "self-settled" trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds from a personal injury award or settlement.

Choosing the correct type of trust for your situation is critical. Learn more about different types of special needs trusts and what they can pay for. Find a local special needs planner to help you make informed decisions and ensure that the trust complies with state laws.