Trusts enable one person to provide for someone else without giving the second individual control over the assets within the trust. What is a special needs trust, then? Special needs trusts benefit an individual with special medical or care needs. Critically, through a special needs trust, you can provide financial support to a person with disabilities without disqualifying them from essential government benefits such as Medicaid and Supplemental Security Income (SSI).
At Tavss Fletcher, our team understands the importance of careful planning when creating trusts, especially special needs trusts. For over 30 years, our experienced attorneys have helped families and individuals in Virginia and North Carolina. Whether you are considering a special needs trust or have questions about eligibility and funding, our team is here to help.
Understanding Special Needs Trusts
A special needs trust (SNT), or supplemental needs trust, is a legal arrangement that:
- Creates a trust to benefit someone with special needs;
- Includes terms limiting the beneficiary’s (the person with special needs) ability to control assets within; and
- Relies on a trustee to control and direct trust activity, follow trust terms, and provide for the beneficiary without giving them enough control over assets to jeopardize their public benefits.
The assets in the trust do not count against the beneficiary’s eligibility for public benefits, and the trust can cover expenses that those programs do not.
Types of Special Needs Trusts
Special needs trusts include:
- First-party SNTs: Funded using the beneficiary’s assets;
- Third-party SNTs: Funded using someone else’s assets; and
- Pooled trusts: Managed by a nonprofit organization.
Each type serves the same core purpose: to provide support without jeopardizing access to government benefits.
Limitations on Public Benefits
Public benefits programs provide financial assistance for people who struggle to provide for themselves. In the U.S., most public benefits programs limit eligibility based on financial need. SNTs often involve disabled individuals, who may qualify for:
- Supplemental Security Income (SSI),
- Social Security Disability Insurance (SSDI),
- Medicaid Home and Community-Based Services (HCBS) waivers,
- State disability assistance programs, or
- Vocational rehabilitation programs.
SSI, for example, limits a recipient’s monthly income to $967 and their total countable assets to $2,000. These limits apply regardless of a person’s actual needs or expenses.
“Countable” Assets
When determining eligibility for disability benefits, government agencies evaluate an applicant’s countable assets, which the government identifies as resources they can access or use for support. Examples of non-countable assets may include:
- The applicant’s primary home,
- One vehicle used for transportation,
- Household goods and personal belongings,
- Certain types of burial arrangements, and
- Assets within a special needs trust.
Examples of countable assets include:
- Money in checking or savings accounts;
- Stocks, bonds, or investment accounts;
- Property other than the primary residence;
- Cash value of life insurance policies over a certain amount; and
- Vehicles beyond the first.
Countable assets count toward the asset limit, while non-countable assets do not.
Why Use a Trust
The government can cut someone off from the support they rely on for a simple mistake, like having more than $2000 in a personal bank account. As harsh as it sounds, government agencies can, and do, cut off access to benefits if a recipient exceeds program limits even once.
Having benefits reinstated can be time-consuming and difficult, often requiring detailed documentation, appeals, and long waiting periods. During that time, the individual may lose access to critical health care, housing, or food assistance, placing their well-being at serious risk.
How Does a Special Needs Trust Work?
To establish an SNT, you:
- Draft a trust instrument, which establishes trust terms like when the trustee should provide funds to the beneficiary and for what purposes;
- Select a trustee to manage the trust’s assets and make payments to the beneficiary; and
- Direct the trustee to use funds from the trust to pay for approved expenses.
Because the trust owns the funds and the trustee controls them, they do not count toward the beneficiary’s income or asset limits.
What Can a Special Needs Trust Pay For?
A special needs trust can pay for various goods and services that improve the beneficiary’s life, but it must not duplicate what public assistance provides. For example, the trust may pay for:
- Medical and dental costs not already covered;
- Personal care attendants or therapy services;
- Education and vocational training;
- Transportation, including vehicle purchases or modifications;
- Home furnishings and modifications;
- Electronics, computers, and internet access;
- Recreational activities and travel; and
- Legal and financial services.
These expenses support the individual’s dignity, comfort, and independence. However, strict rules exist about what costs the trust may not cover.
What Can a Special Needs Trust Not Pay For?
To protect eligibility for government benefits, a special needs trust generally cannot be used to pay for needs already covered by SSI or Medicaid. Payments that may run into issues include those for:
- Rent or mortgage payments;
- Utilities like gas, water, or electricity;
- Direct cash payments to the beneficiary; and
- Any payments that duplicate services provided by public programs.
Carefully structuring the trust is critical to avoid improper disbursements, which could result in a reduction or loss of government benefits.
How Much Money Can Be Put in a Special Needs Trust?
No specific limit exists on how much money you can place in a special needs trust. However, you should base the amount on the individual’s needs, projected future expenses—such as medical care, therapies, housing support, and lifestyle enhancements—and the type of trust.
For example:
- Third-party SNTs have no contribution cap, and families often fund the trust through gifts or estate planning tools;
- First-party SNTs may be subject to Medicaid payback if any assets remain when the beneficiary dies, allowing the state to recover Medicaid expenses; and
- Pooled SNTs allow a non-profit organization to set minimum and maximum contribution limits.
A trusts and estates attorney can help determine how much to include and how to structure contributions effectively.
Working with Tavss Fletcher
Creating a special needs trust requires legal insight, careful planning, and a clear understanding of government benefit rules. An experienced attorney can help you:
- Choose the type of trust and set it up;
- Draft documents that meet legal requirements, tailored to your needs;
- Select a responsible and knowledgeable trustee; and
- Coordinate with other parts of your estate plan.
At Tavss Fletcher, our attorneys have decades of experience helping clients navigate the complexities of supporting someone with special needs. Our team offers personalized attention, compassionate counsel, and tailored legal strategies. We proudly serve communities throughout Virginia and North Carolina, including Norfolk, Virginia Beach, Chesapeake, and the surrounding areas. If you are ready to establish a special needs trust or want to learn more about your options, contact Tavss Fletcher today.