Special Needs Trusts: The Basics

The basic definition of a special needs trust or supplemental benefits trust is any trust intended to provide benefits without causing the beneficiary to lose public benefits that they may be able to receive.  Most commonly special needs trusts are intended to protect the public benefits of Supplemental Security Income and Medicaid.  However, these trust do not automatically qualify the recipient for public benefits, they must already qualify for them.

Anyone is eligible to establish a special needs trust, and the two general categories of these trusts are self-settled and third-party trusts.   A self settled special needs trust is advisable when a recipient has certain assets that prevent eligibility for public benefits.  In these cases it may be possible to place these assets into a trust to continue receiving public benefits.  Conversely a third party special needs trust can be established by one person for the benefit of another.  The person establishing the trust chooses to make some of his or her own assets available for the benefit of the disabled beneficiary.  Since the beneficiary was not entitled to the money in these trusts, the most important rule for these third party trusts is that the terms should not create any entitlement to either income or principal.

A special needs trust can be used to purchase a home or pay rent but there are many exceptions and legal advice from an estate planning lawyer is encouraged.  Also, starting in March of 2005, a special needs trust could also be used to purchase clothing.