A Layperson's guide to Special Needs Trusts

There are a LOT of articles out there telling you to get a Special Needs Trust, yet most focus only on how they can protect public benefits. While this is true, it leaves a lot unsaid. And when you are looking at spending $3k or more I think it’s important to have as clear a picture as possible. So let’s take a deep dive into what a Special Needs Trust is, how they work, things to consider before getting one, and where to go to get one.

I am NOT an attorney, I can’t (and won’t) tell you whether you need one or not. I can’t tell you if yours is written correctly. I don’t know if it will do what you want it to do. This brings me to my first point. Special Needs Trusts are complicated! If you decide you need one you will want to work with someone who has made them a focus of their practice.

In many states, lawyers aren’t allowed to say they “specialize”. So look for attorneys who practice “Elder Law” or call themselves “Special Needs” attorneys. While yes, every estate planning attorney can draft a trust, Special Needs Trusts have different criteria and require specific language. Make sure you are working with someone who has years of experience.

A few resources I rely heavily on are the National Academy of Elder Law Attorneys (NAELA) and the Academy of Special Needs Planners. Both have a tool you can use to find an attorney near you. Don’t set up an appointment just yet, let’s talk about what you should consider before talking with a lawyer to set up a Special Needs Trust. This isn’t an argument for or against getting one, rather it’s meant to make sure you are ready to take action.

Two somewhat common cases requiring a Special Needs Trust are divorces with a disabled child and retiring military with a disabled child. When divorcing, if there is a plan to continue paying child support after the child turns 18 you want to make sure you get a Special Needs Planning attorney involved. Child support counts as unearned income, you could accidentally screw your kid out of their benefits. If retiring, servicemembers have been allowed to leave their Survivor Benefit Plans to their disabled children since 2016, but these have strict rules as well.

I’m going to assume you, or someone you care for, is receiving means-tested benefits (SSI, SNAP, housing voucher, etc) and you want to protect these. Perhaps you went to a resource fair, attended a seminar, or had your case manager say you needed one. All of these could be valid reasons for setting up a Special Needs Trust, but none of them address what it’s for.

Protecting public benefits is what it “does”. Think of a Special Needs Trust like your car. It’s going to get you from point A to Point B. At the risk of being morbid, my Trusts are set up to get my son to the end of his life after I die. The Trustee is the driver, they decide what the Trust’s money is going to be used for. Things like a Letter of Intent and the Trust document will be the map or GPS the Trustee uses to make sure the Trust stays on the right path and provides the beneficiary with everything you wanted them to have.

I’m not going into all the regulations governing a Special Needs Trust, I’m not a lawyer and I’m afraid I would miss something. Suffice it to say there are a LOT. Your Trust will have its own Taxpayer ID Number, it will pay taxes just like you do (although probably at a higher rate). This is one of the reasons many Trustees don’t want to manage Trusts with less than $1M in them.