What Is A Special Needs Trust?

A special needs trust is a trust created to provide funds to supplement public benefits for an individual with a disability. Funds in the trust do not count as resources for purposes of eligibility for public benefit programs such as Medical Assistance, Medicaid, Supplemental Security Income, and/or Mental Health and Intellectual Disability (MH/ID) benefits. For individuals with special needs, these benefits are often critical in providing essential services and supports. Because many public benefit programs are means tested, special needs trusts play an important role in maintaining eligibility for benefits while still providing resources to meet needs not covered by benefit programs.

There are two broad categories of special needs trusts. The first is third-party trusts, also known as supplemental needs trusts. These trusts are created and funded by someone other than the trust beneficiary. These trusts are commonly used by parents and grandparents to provide for the long term financial security of loved ones with special needs. These trusts can be funded while the trust creator is still living, or they can be funded with an inheritance left to the trust.

The second category is for self-funded trusts. These trusts are used to hold resources belonging to an individual with a disability. All expenditures from these trusts must be for the sole benefit of the trust beneficiary. There are two kinds of self-funded special needs trusts. The first are self-settled trusts created by a parent, grandparent, legal guardian or court. Beneficiaries of self-settled trusts must be under the age of 65 at the time of creation of the trust, and no assets can be added to the trust after the beneficiary reaches age 65. On death, any funds remaining in the trust must be used to repay Medicaid benefits received by the trust beneficiary. The second type of first-party trusts are pooled trusts. Pooled trusts are established by charitable organizations and individuals with disabilities can join pooled trusts by completing a Joinder Agreement and funding the trust with their resources. The funds in the trust are pooled for investment purposes, but the accounts within the trust are separately maintained for the account beneficiaries. When the beneficiary dies, any funds remaining in the trust stay in the pool to benefit other individuals with special needs.