How Do I Get Rid of a Special Needs Trust?

Nearly every state's probate code includes a right to terminate a trust for a variety of reasons, typically if there are changed circumstances or the original intent behind setting up the trust no longer applies. Even if there are no specific laws in your state, probate courts are courts of equity (meaning that they can do what’s fair, regardless of the law), and you may be able to argue that it no longer makes sense to have a special needs trust. 

Reasons to Keep the Trust

Say you have a son who received a large settlement for a personal injury in a lead poisoning case. He is now 18 and no longer needs the trust for that purpose. You could terminate it.

However, this does not mean that you should terminate the trust. If you have a first-party special needs trust and your loved one has Medicaid benefits, then terminating the trust may trigger a payback to the state’s Medicaid agency for all benefits it paid out for their injury. Further, if you hand them a large sum of money without any restrictions, the money will probably not be spent well. Sometimes keeping the assets in trust may allow your family member to manage money, especially if the beneficiary of the trust is young. The money may be preserved and used later.

Before You Decide

Terminating a trust may affect a beneficiary in unintended ways. The best thing to do is contact a special needs planner in your area and explain your situation before making this critical decision.