If you want to leave money or property to a loved one with a disability, you must plan carefully. Otherwise, you could jeopardize your loved one's ability to receive Supplemental Security Income (SSI) and Medicaid benefits. By setting up a "special needs trust" (or "supplemental needs trust") in your will, you can avoid some of these problems.
Owning a house, a car, furnishings, and normal personal effects does not affect eligibility for SSI or Medicaid. But other assets, including cash in the bank, will disqualify your loved one from benefits. For example, if you leave your loved one $10,000 in cash, that gift would disqualify your loved one from receiving SSI or Medicaid.
A special needs trust is a trust that holds funds for your loved one but does not impact your loved one's financial eligibility for government programs. If you have a loved one with special needs, you can use a special needs trust to leave behind money that will improve the quality of life of your loved one. That is, instead of leaving property directly to your loved one, you would leave it to the special needs trust.
The money in the special needs trust is managed by a trustee, and is not considered to be part of your loved one's assets when calculating their financial eligibility for government programs like SSI and Medicaid.
Learn more about Who Can Benefit from a Special Needs Trust.
The trust ends when it is no longer needed—commonly, at the beneficiary's death or when the trust funds have all been spent.
If you're looking to set up a special needs trust, learn more about How Special Needs Trusts Work.
The trustee cannot give money directly to your loved one—that could interfere with eligibility for SSI and Medicaid. But the trustee can spend trust assets to buy a wide variety of goods and services for your loved one. Special needs trust funds are commonly used to pay for personal care attendants, vacations, home furnishings, out-of-pocket medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.
Learn more about How Special Needs Trust Funds Can Be Used.
If you can't come up with a good candidate to serve as a trustee or are leaving a relatively modest sum and don't want to set up a separate special needs trust, consider a "pooled trust." These are special needs trusts run by nonprofit organizations that pool and invest funds from many families. Each trust beneficiary has a separate account, and the trustee chosen by the nonprofit spends money on behalf of each beneficiary. Pooled trusts (also called community trusts) are available in many areas of the country.
Learn more about Special Needs Pooled Trusts.
Some lawyers will tell you that only an attorney can draft a special needs trust. But you can create a special needs trust yourself, with the right guidance.
Of course, there are times when you should seek an attorney's advice. For example, you must see a lawyer if you want to create a trust that will be funded with the beneficiary's own money (for example, a settlement from a personal injury lawsuit), rather than your money. Complicated and state-specific rules apply to these kinds of trusts.
To find an attorney with the right experience, try searching Nolo's Lawyer Directory.
The book Special Needs Trusts: Protect Your Childs Financial Future, by Kevin Urbatsch (Nolo), explains when you should seek an attorney's advice to set up a special needs trust. If you determine that you don't need a lawyer, you can use the book's forms and plain-English instructions to set up your own special needs trust.
While special needs trusts can be very helpful, they're not for everyone. You can also explore alternatives to special needs trusts, such as: