Special Needs Trust

A special needs trust is a legal arrangement which creates a trustee and beneficiary relationship. Special needs trusts let a mentally or physically disabled person, or someone with a chronic illness, to receive an income while remaining eligible for public disability assistance.

Terry Turner, writer and researcher for RetireGuide
  • Written by
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 30 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

    Read More
  • Edited By
    Matt Mauney
    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

    Read More
  • Financially Reviewed By
    Ebony J. Howard, CPA
    Ebony J. Howard, CPA

    Ebony J. Howard, CPA

    Credentialed Tax Expert at Intuit

    Ebony J. Howard is a certified public accountant and freelance consultant with a background in accounting, personal finance, and income tax planning and preparation.  She specializes in analyzing financial information in the health care, banking and real estate sectors.

    Read More
  • Published: January 25, 2021
  • Updated: August 17, 2022
  • 4 min read time
  • This page features 4 Cited Research Articles
Fact Checked
Fact Checked

A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

Cite Us
How to Cite RetireGuide.com's Article

APA Turner, T. (2022, August 17). Special Needs Trust. RetireGuide.com. Retrieved September 27, 2022, from https://www.retireguide.com/retirement-planning/estate-planning/trust/special-needs/

MLA Turner, Terry. "Special Needs Trust." RetireGuide.com, 17 Aug 2022, https://www.retireguide.com/retirement-planning/estate-planning/trust/special-needs/.

Chicago Turner, Terry. "Special Needs Trust." RetireGuide.com. Last modified August 17, 2022. https://www.retireguide.com/retirement-planning/estate-planning/trust/special-needs/.

What Is a Special Needs Trust?

A special needs trust (SNT) lets a disabled or chronically ill person use funds set aside in a trust fund without losing government disability payments. It is money or investments put aside to provide a steady stream of income for the beneficiary.

Having a large amount of money or investments socked away usually will disqualify you from receiving certain government benefits. An SNT will protect your access to these programs.

Examples of Government Benefits That Special Needs Trusts Preserve
  • Medicaid
  • Medicare
  • Supplemental Security Income (SSI)
  • Social Security

They are usually a type of irrevocable trust, meaning no one can modify the terms of the special needs trust without the beneficiary’s permission. If they are established as a revocable trust — giving the trust’s creator the ability to change it — the trust may prevent the beneficiary from qualifying for government benefits.

Benefits of Special Needs Trusts

The chief benefit of a special needs trust is that the beneficiary receives financial help from the trust while still getting government benefits. A SNT allows you to preserve this access to government benefits by creating a workaround.

Instead of leaving money to your beneficiary, you leave it to the trust. And instead of the trust giving money directly to your beneficiary, the special needs trust buys products or services your beneficiary needs or uses.

Expenses That Special Needs Trusts Can Pay For
  • Dental expenses
  • Education
  • Funds for a business start up
  • Home care, including personal attendants
  • Home furnishings
  • Items necessary for the beneficiary’s work
  • Life insurance policies
  • Medical expenses
  • Payments toward one home (rent or mortgage)
  • Physical therapy or rehab
  • Vacations
  • Vehicles (only one at a time)
  • Vocational training

But there are other things that special needs trusts can’t be used for, including direct cash payments to the beneficiary, purchasing stocks and bonds, contributions to an IRA or 401(k) plan or other investment accounts.

Types of Special Needs Trusts

There are two types of special needs trusts: Third-party and first-party. The type depends on the needs of the person setting up the trust, the needs of the beneficiary and the situation which created the need for a special needs trust.

Types of Special Needs Trusts
Third-Party Special Needs Trust
These are typically created by people with a disabled relative who they expect will outlive them. They may be created in a will or as a standalone trust, and they are usually funded upon the death of the person who creates the special needs trust.
First-Party Special Needs Trust
These are usually created when the beneficiary comes into a large sum of money such as a court settlement or inheritance. They are often created when the beneficiary becomes suddenly disabled, allowing the person to keep his or her assets but still qualify for public disability benefits.

Regardless of which type of SNT you create, it is important to draft the paperwork very carefully. You can set up a special needs trust on your own, but working with an attorney can insure that the beneficiary will not lose any benefits and that the trust will be spent the way you intend.

How to Set Up a Special Needs Trust

An SNT can be set up as part of your will, as a living trust (created to avoid probate) or as a standalone special needs trust.

A special needs trust must be set up before the beneficiary turns 65.

The person who sets up the special needs trust chooses a trustee to oversee the SNT. The trustee will have complete control over the investments and money in the trust as well as how it will be distributed or spent on the beneficiary’s behalf.

If you can’t find a suitable trustee or are not leaving a large sum of money that would make many options worthwhile, you can consider joining a pooled trust — sometimes called a community trust.

Pooled trusts are run by nonprofit groups that pool and invest funds from many different people who have set up special needs trusts.

Your beneficiary will still have a separate account and a trustee selected by the pooled trust will work with your beneficiary to distribute proceeds as needed.

Last Modified: August 17, 2022

4 Cited Research Articles

  1. Siegel, S. (2020, August 21). Understanding Special Needs Trusts. Retrieved from https://www.natlawreview.com/article/understanding-special-needs-trusts
  2. Doebler, D. (2018, October 25). 5 Reasons to Consider a Special Needs Trust. Retrieved from https://www.herwealth.com/blog/5-reasons-consider-special-needs-trust
  3. Hodson, S.H. (n.d.). When a Special Needs Trust Is Not the Only Best Choice. Retrieved from https://www.disabilityresource.org/41-when-a-special-needs-trust-is-not-the-only-or-best-choice
  4. U.S. Social Security Administration. (n.d.). Spotlight on Trusts – 2020 Edition. Retrieved from https://www.ssa.gov/ssi/spotlights/spot-trusts.htm