Special Needs Trusts

Parents and caretakers of children and the elderly with special needs are faced with daily challenges which make it difficult to do much in the way of planning or preparing for the future. The “take-it-one-day-at-a-time” approach may work most of the time. However, experts say parents of special needs children or the elderly should pause to consider what may happen to the child if something happens to them.

With increasing life spans among disabled people, odds are good that many of these children will survive their parents. There are three ways to set up a Special Needs Trust:

  • Medicaid is the Federal program administered by the states which provides health care for those that can’t afford it. See 42 U.S.C. § 1396 et seq. This may vary from state to state, but there are also mandatory Federal law provisions.
  • A Special Needs Trust funded by parents or other third party sources will not be required to pay back Medicaid.

If you are the Trustee for a disabled loved one, it does not necessarily mean that you are their Guardian. Make sure that if that is the intent that the proper paperwork is drafted


  • Testamentary Trust. This adds language to your existing living trust that states when deceased, a proportionate share would go to the special needs trust, verses directly to the child. You keep the assets in your estate until deceased, at which time the trust is funded. This is the simplest method of protecting your loved one.
  • “Stand-Alone” Special Needs Trust. A trust is setup now, rather than after you pass, and the trust is managed separate and apart from your living trust and other assets. If you are willing to have the value of the trust included by the IRS as a part of your estate when you die (and thus being subject to estate taxes), then you can set the trust up as a revocable trust, and you can serve as the trustee.
  • “Stand-Alone” Irrevocable Special Needs Trust. This trust accomplishes both the goal of setting aside assets for your loved one now, rather than after you pass, but also can remove the assets from your taxable estate. This allows you to also lower the estate taxes on your estate after you pass. The difference between this and Stand Alone is you cannot be the Trustee. You cannot reserve the right to revoke or amend the trust.


Only professionals that specifically handle Special Needs Trusts (aka Supplemental Needs Trusts) should be hired to draft this type of legal document for a loved one. Unless properly worded, the government and benefits agencies can access these funds.

The attorney should have a vast background in estate planning, disability laws, navigating Medicaid, Guardianships/Conservatorships, and Elder Law. If dealing with a firm or financial institution that specializes in Special Needs Trusts, make sure to check that attorneys are on staff.


Make sure all paperwork is in order as to the degree of disability, and the Long Term Plan that is in place. This includes:

  • How will the Special Needs Trust be funded?
  • Are you the established Guardian or Power of Attorney? Have documents ready.
  • What is the long term prognosis?
  • Have you drafted a will or living trust?
  • Do you have a “Life Care Plan?”
  • Provide a list of all needs including medications and special requirements.


  • Research the attorney’s experience; is he/she a specialist in Special Needs Trusts?
  • How well versed in disability benefits, SSI, Medicaid, wills, trusts, and estate planning?

Know about pricing:

  • Hourly rates
  • Are paralegals substituted when appropriate
  • Describe all piece-meal charges
  • Will they provide a complimentary consultation hour?
  • Ask for several references to determine:
  • Was the level of communication satisfactory?
  • Was the desired outcome positive?
  • Would you hire this person again?

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