What is a Special Needs Trust?



If you currently receive needs-based benefits, and have been classified as disabled under the guidelines of the relevant government program, you might also consider using a Special Needs Trust to preserve your benefits.

Placing settlement proceeds into a Special Needs Trust allows you to use your settlement award for items that can enhance your quality of life without jeopardizing your eligibility for Supplemental Security Income, Medicaid, Food Stamps and/or Subsidized Housing.

Please note that timing is critical. You must create or join a Special Needs Trust before accepting your settlement proceeds. The terms of the trust cannot be changed once the money is deposited into the trust account. These types of special needs trust are considered irrevocable, and that means that once the trust is set up, it generally cannot be cancelled and the money cannot be taken out until the beneficiary dies, or all the funds have been spent.

There are two types of Special Needs Trusts: Private and Pooled. Both private and pooled Special Needs Trusts must follow state and federal guidelines for using the money in the trust. Because of those rules, it is usually best for an independent, third party trustee to decide how the trust money should be used. The trustee can determine what purchases to make with the trust funds, and ensure that purchases are for “supplemental” goods and services, rather than food, shelter, or clothing items that government programs are meant to cover. The Special Needs Trust CANNOT be used to pay for food or shelter and will NOT allow you to receive a cash payout. Also, you should know that fees are charged to set up and administer a Special Needs Trust.

Despite their restrictions, Special Needs Trusts are flexible and can be used in a manner that greatly improves a disabled person’s quality of life. For example, your trust funds can be used for a variety of supplemental goods and services including:

  • Special medical or exercise equipment, if not available through other third party sources;
  • Equipment such as telephones, radios and cameras;
  • A reasonably priced handicap-equipped car that is used as your primary vehicle;
  • The purchase of a new home (but probably not its maintenance);
  • Travel and vacations for you, including trips to visit friends and family; and
  • Participation in hobbies, sports or other activities.

When the disabled person dies, the trustee for the Special Needs Trust must first reimburse the State for the amount of Medicaid benefits paid on behalf of the deceased.

If you have more questions about how your settlement could affect your eligibility for needs-based benefits, you should talk to your caseworker or a qualified advisor before you accept your settlement award. Remember, no matter which option you choose, you must tell your government caseworker about your settlement or you could lose your benefits.