What Can a Special Needs Trust Pay For?

For people with disabilities, receiving benefits from government programs like Medicaid and Supplemental Security Income (SSI) can be crucial. These programs provide funding that helps cover the essentials, such as medical care, food, clothing, and shelter.

As “needs-based” programs, individuals whose resources exceed a certain limit may be disqualified from receiving benefits. This is where a special needs trust can be helpful.

What Is a Special Needs Trust (SNT)?

A special needs trust is a legal document designed to help people with disabilities. It permits the individual with the disability to have funds available that enhance their quality of life — without making them ineligible for public benefits such as SSI and Medicaid.

Special needs trusts are intended to supplement, not replace, this kind of basic support that public benefits programs provide. Funds pay for anything the trust document provides for, including comforts and luxuries that meager public assistance funds don’t cover.

Benefits of a Special Needs Trust

There are a number of reasons to consider establishing an SNT. In addition to preserving your loved one’s access to government benefits, a special needs trust can offer the following advantages:

• Financial security

Families of children with disabilities or chronic illness may set up a special needs trust to help ensure that their child will have the financial resources they need for years to come.

• Protection of assets

Individuals with certain disabilities may be at higher risk of financial abuse. With a special needs trust in place, and a responsible trustee to oversee how the funds are spent, your loved one’s assets are better protected.

• Opportunity to support a charity

Thanks to the passage of a sweeping legislative bill in late 2022, creators of special needs trusts are now permitted to pass certain assets on to charitable organizations, in the event that the beneficiary of the special needs trust dies prematurely. Families may wish to support a nonprofit that has provided essential services to their disabled loved one, for example.

Types of Special Needs Trusts

There are two common types of SNTs: a first-party special needs trust and a third-party special needs trust.

A first-party SNT may often be established with the resources belonging to the person with the disability – as in the case of an individual who received a personal injury settlement that left them disabled.

A third-party SNT is typically created by a disabled individual’s loved one, such as a parent.

What Special Needs Trusts Can Cover

A special needs trust has been likened to a parent’s pocket — it pays for the kinds of comforts that a parent might reach into their pocket to cover.

These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple necessities of life.

Here are some examples of expenses that an SNT might cover:

• Medical and dental expenses not covered elsewhere
• Equipment like wheelchairs or specially equipped vans
• A car
• Therapy or rehabilitation services
• Training and education
• Vacation
• Help with starting a business
• Home furnishings
• Travel, which can include the cost of a companion
• Transportation services (Uber, Lyft, bus pass, etc.)
• Recreation and entertainment (summer camp, movies, social events, sports equipment)
• Electronic equipment, appliances, and computers
• Payments for a companion
• Legal or guardianship expenses
• Insurance
• Burial expenses

What an SNT Cannot Pay For

However, there are other things a special needs trust should not be used to provide, including:

• Rent or mortgage payments
• Cash
• Gift cards
• Condo association fees
• Property taxes
• Utilities, such as electricity

Note that the SSA has historically counted “free food” as unearned income for SSI recipients as well, but this is no longer the case as of September 30, 2024.

Trustees should typically never give an SSI or Medicaid beneficiary cash or a cash equivalent, or pay for something like shelter without first consulting a special needs planner. The trustee, in consultation with the planner, might want to use trust funds for shelter if the trustee decides doing so is in the trust beneficiary’s best interest despite a possible loss or reduction in public assistance.

Once you have taken cash and housing off the table, a special needs trust can usually pay for most other things a beneficiary might need to supplement their lifestyle.

The rules governing special needs trusts are very complicated, so it is always best to sit down with a qualified special needs planning attorney in your area to discuss what you intend to do with your trust before making any payments to anyone.

For additional related reading, check out the following articles:

• Few Parents Know About Child Care Resources for Disabilities
• Driver's License Markers for People With Autism
• 10 Tips to Consider When Special Needs Planning
• Grant Funding for Children With Special Needs
• AI Tools Can Support Families Navigating Special Needs Care