What Are The Pros And Cons Of Having A Special Needs Trust?

by | Aug 4, 2023 | legacy planning, trusts

Special Needs Trust


When planning for the future of a loved one with disabilities, a special needs trust can be a powerful tool to ensure their financial security and access to essential benefits. Special needs trusts are designed to hold and manage assets for the benefit of individuals with disabilities while maintaining their eligibility for government assistance programs. 

What is a Special Needs Trust?

A special needs trust, also known as a supplemental needs trust, is a legal arrangement established to hold and manage assets for the benefit of a person with disabilities. The trust is designed to enhance the quality of life for the individual while preserving their eligibility for means-tested government benefits, such as Medicaid and Supplemental Security Income (SSI). These trusts are particularly valuable when the disabled individual may inherit or receive assets that, if held directly, could jeopardize their eligibility for vital government assistance programs.

Pros of Having a Special Needs Trust

Preserving Eligibility for Government Benefits: One of the primary advantages of a special needs trust is that it allows the beneficiary to retain eligibility for essential government benefits. By keeping the assets in the trust, they are not considered countable resources, ensuring that the individual can continue receiving much-needed assistance.

Supplementing Government Benefits: While government assistance programs provide valuable support, they may not cover all the needs and desires of the individual with disabilities. A special needs trust can be used to supplement these benefits, enhancing their quality of life by providing additional resources for education, therapy, recreation, and other essential services.

Asset Management and Protection: A special needs trust provides a structured framework for managing the assets on behalf of the beneficiary. A trustee, appointed to administer the trust, ensures that the funds are used wisely and in the best interests of the individual with disabilities.

Protection Against Exploitation: By placing assets in a special needs trust, families protect their loved one with disabilities from potential financial exploitation or mismanagement. The trustee’s fiduciary duty ensures that the assets are used solely for the beneficiary’s benefit.

Customized Planning: Special needs trusts are highly flexible, allowing families to customize the trust’s terms to meet the unique needs and circumstances of the individual with disabilities. This flexibility extends to the types of expenses the trust can cover, providing tailored solutions for the beneficiary’s care.

Inheritance Planning: A special needs trust is a valuable tool for families who want to leave an inheritance to their loved one with disabilities. By designating the trust as the beneficiary of their assets, parents and other family members can provide for the individual’s future without jeopardizing their government benefits.

Cons of Having a Special Needs Trust

Complexity and Cost: Creating and administering a special needs trust involves legal expertise and ongoing management, which may result in higher costs compared to simpler estate planning options. Families should weigh the benefits against the associated expenses.

Limited Control: The trust’s terms are irrevocable, and the assets are subject to the trustee’s control. While this ensures proper management, it may limit the beneficiary’s control over the funds. Families must carefully select a trustworthy and capable trustee.

Medicaid Payback Provision: In certain cases, special needs trusts may include a “Medicaid payback” provision, requiring any remaining funds in the trust to be used to reimburse Medicaid for the beneficiary’s care upon their passing. This provision may reduce the amount available for distribution to other family members or charitable causes.

Tax Implications: Depending on the trust’s structure and the amount of assets held within it, there may be potential tax implications for the trust and its beneficiaries. Seeking advice from a tax professional is crucial to understand the tax consequences.

A special needs trust is a valuable estate planning tool that offers numerous advantages for individuals with disabilities and their families. By preserving eligibility for government benefits, supplementing those benefits, and providing asset protection, special needs trusts ensure the financial security and well-being of loved ones with disabilities. However, the complexity, costs, limited control, and potential Medicaid payback provision are essential factors to consider when deciding whether a special needs trust is the right option for your family’s unique circumstances. 

To make well-informed decisions, it is crucial to seek guidance from an experienced estate planning attorney with expertise in special needs trusts. By carefully planning and creating a comprehensive trust, you can secure a brighter and more secure future for your loved ones with disabilities.

Schedule a Consultation with a Professional Estate Planning Attorney

Contact Galanti & Copenhaver now to create a personalized trust that safeguards your beneficiary’s financial security while preserving essential benefits. Our experienced team will guide you through the process, providing compassionate and expert advice every step of the way. Ensure your special needs individual receives the care they deserve. Schedule a consultation today!