Special Report- Part 10 of 12 Facts Every Special Needs Family Should Know About Estate Planning






Fact # 10 – Know what a special Needs Trust does and does not do.

A trust is a legal document that allows property to be held and managed by one person (the trustee) for the benefit of another (the beneficiary). A properly drafted trust can both protect your special needs child’s eligibility for benefits, as well as provide for financial management without the need for guardianship.

Unlike the person holding a morally obligated gift, a trustee cannot use the trust for his or her own benefit; it can only be used for the benefit of the beneficiary. When the trust ends (usually upon the death of the
beneficiary), any assets remaining in the trust are distributed as provided in the trust.

A trust is a very flexible arrangement, and the terms of the trust are defined almost exclusively by the person setting it up. A trust can be created during your lifetime or can be created at your death by your will. Also, a trust can be created during your lifetime, but not be funded until your death, with, for example, the proceeds from your life insurance policy. Trusts may have more than one beneficiary and/or more than one trustee.

A trust can be either revocable or irrevocable – terms that indicate whether the trust can be terminated or changed. The trust may identify certain circumstances under which the trust will terminate, or identify certain persons with the authority to terminate the trust. Such a trust is termed revocable. Such a trust is also amendable. An irrevocable trust is one that cannot be terminated other than by the distribution of all assets according to the terms of the trust.

A trust can be mandatory or discretionary. A mandatory trust requires the trustee to make disbursements to the beneficiary, usually in prescribed installments or amounts. While this kind of trust assures that your relative will receive specific benefits from the trust, a mandatory trust generally counts as a resource in determining eligibility for SSI and MA.

A discretionary trust, on the other hand, empowers the trustee to determine what amount of the trust principal and/or income will be distributed to the beneficiary, when it will be distributed, and to whom it will be distributed (if the trust names more than one beneficiary). Unlike a mandatory trust, which can be counted as a resource and therefore disqualify your relative from MA and SSI, a properly drafted discretionary trust offers you the ability to provide for the supplemental needs of your relative, without jeopardizing his or her right to government benefits or increasing his or her liability for MH/MR services. Such trusts often are called “special needs trusts” or “supplemental needs trusts.” It is imperative, however, that the trust be carefully drafted, assuring that the trust does not jeopardize your special needs child’s right to SSI or MA or increase his or her liability for MH/MR services.

A discretionary trust can be written with the purpose of accomplishing any legal purpose. Because the trustee in a discretionary trust is often making a lot of decisions about the personal needs of your special needs child, great care should be taken in choosing the person who will serve as trustee. Money management ability alone may not be enough, so consider appointing a person with some fiscal skills, as well as a good understanding of your special needs child and his or her disability. In addition, there are competent and professional non-profit organizations such as The Family Trust, a division of Achieva that can act as the trustee and will manage, invest, and disburse trust funds according to your wishes.

A trust can be used not only as a means of providing assets to your special needs child without jeopardizing government benefits, but also as a means of protecting your special needs child against the loss of government benefits if he or she has his or her own assets. If your special needs child acquires sudden wealth as a result of a lawsuit settlement, legal judgment, or inheritance, or if he or she has income from earnings or investments, federal law may exempt such sums from counting as resources and income for purposes of determining Medicaid eligibility if those sums are placed in one of the following special trusts.

Pay-back Trust

Your relative must be under age 65.

The trust must be created by a parent, grandparent, legal guardian, or the court.

The trust must provide that any assets remaining in the trust upon your special needs child’s death will be paid to Pennsylvania, up to the amount paid by Medicaid on behalf of your special needs child.

Pooled Trust

A Pooled Trust is one established and managed by a non-profit association that maintains separate accounts for each beneficiary but that pools all the accounts for the purposes of management and investment.

The trust must provide that any amounts remaining after the death of your special needs child will remain in the Pooled Trust (for the benefit of other persons with disabilities) or be paid to Pennsylvania, up to the amount paid by Medicaid on behalf of your relative.

Common Law Trust

This is the type of trust that works well for many special needs families’ estate plans. This trust can be used to supplement the child’s needs without jeopardizing benefits.
Upon the death of the special needs child, the assets remaining in the trust are passed to the beneficiaries that you designate.

The rules governing these types of trusts can be complex, and your attorney should review them carefully before drafting such a trust.

One advantage of a special needs trust is that it can be set up so friends and relatives can make gifts to your special needs child without interfering with benefits. This can be especially helpful for a grandparent who wants to treat all grandchildren equally with gifts or inheritances.


This report is designed to inform families with special needs children about the various kinds of estate plans, suggest the advantages and disadvantages of each, and assist you in identifying the kind of information to gather and share with your lawyer and financial planner.

Call us at 1 800 879 0984 to begin your planning, and gain your peace of mind.
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