"A special needs trust (SNT) is a legal tool designed to help people with disabilities or chronic illnesses receive financial support without losing access to important government benefits like Social Security, Supplemental Security Income (SSI), or Medicaid," said professional fiduciary and certified elder law Attorney RJ Connelly III. "While these government programs can provide essential services like medical care, food, and housing, they often limit how much money a person can have. That's where the SNT comes in—it adds extra financial support without replacing the benefits."
Sometimes called "Supplemental Needs Trusts" or "Disability Trusts," SNTs allow families to provide their loved ones with additional help to improve their quality of life. By setting up a special needs trust, families can help with care costs and help their loved ones enjoy activities and experiences that government assistance might not cover.
One significant feature of a special needs trust is that it is irrevocable, meaning that once it is established, the grantor cannot alter or dissolve the trust without the beneficiaries' consent. This aspect provides a strong measure of financial security for individuals with disabilities. Additionally, the assets and funds held within the trust are protected from creditors, ensuring they cannot be seized in case of legal claims or debts. This protection helps to maintain the trust's intended purpose: to enhance the quality of life for the beneficiary without jeopardizing their eligibility for government assistance programs. By safeguarding these assets, the trust effectively allows for supplemental support beyond public benefits, ensuring that the beneficiary's needs are met now and in the future.
More About the SNT
A special needs trust (SNT) is a crucial financial instrument specifically designed to enhance the quality of life for individuals with disabilities. By facilitating the allocation of funds for essential services and expenses not covered by government aid programs, such as Medicaid, an SNT ensures that beneficiaries can access necessary resources without jeopardizing their eligibility for these vital services.
One of the most significant benefits of a special needs trust is its ability to safeguard assets. The funds and resources held within the trust are not considered part of the beneficiary's personal assets, allowing individuals with disabilities to maintain eligibility for public assistance. This means they can receive additional support without conflicting with the limitations imposed by government programs.
Typically, the funds from a special needs trust can be utilized for a wide range of needs, which can include medical expenses not fully covered by Medicaid, therapies that enhance the individual's well-being, special transportation services, and personal care services that provide additional support beyond what is available through public resources. Other approved expenditures may involve recreational activities, educational support, and assistive technologies to enrich the beneficiary’s life.
In the structure of a special needs trust, several key roles are defined to ensure its effective management and operation. The Grantor is the individual who establishes the trust, often a family member or guardian, who outlines the terms and conditions of how the trust will function. The Trustee plays a pivotal role, being the individual or institution appointed by the Grantor to oversee the management of the trust, including investment decisions and disbursement of funds in accordance with the Grantor’s wishes. Finally, the Beneficiary is the individual with a disability who stands to gain from the trust, receiving assistance that helps promote independence and enhances their overall quality of life.
By creating a carefully structured special needs trust, families can provide financial security and peace of mind, ensuring their loved ones receive the care and support they need throughout their lives.
Types of Special Needs Trusts
There are two primary types of special needs trusts:
Third-Party Special Needs Trust: This trust is funded by someone other than the individual with a disability, such as through gifts, inheritances, or insurance payouts.
Self-Funded or First-Party Special Needs Trust: This type allows the individual with a disability to contribute their funds to the trust while still retaining eligibility for benefits like Supplemental Security Income (SSI) and Medicaid. This trust must contain only assets that belonged to the beneficiary before being placed in the trust.
You don’t need to be wealthy to establish a special needs trust; various assets, such as cash, stocks, or life insurance, can all serve as funding sources. For instance, a life insurance policy can be an effective way for families to ensure that their loved one with a disability can access necessary resources without impacting their daily finances. If a significant portion of your wealth is held in an Individual Retirement Account (IRA), consulting with a specialist who understands the complexities of managing these assets for a special needs trust is advisable.
For families with a child or loved one who has a disability, special needs trusts can play an essential role in planning for a secure future. After understanding the benefits and limitations of these trusts, it’s advisable to consult with a special needs planner or attorney to develop a plan that meets your family’s unique needs. Additionally, it's crucial to remember that this trust must be set up before the person turns 65 years old.
Can the SNT Pay for Housing?
A common question about Special Needs Trusts is whether they can be used to pay for housing. Generally, the answer is no, but there are some special cases where this might make sense. With the ongoing housing crisis, it's important to look at the issues people face when finding affordable homes, especially for those relying on government assistance.
Individuals who rely on Supplemental Security Income (SSI) often face significant obstacles. The financial support provided by SSI typically does not cover the costs associated with private market rentals, creating substantial housing difficulties for many. Additionally, the growing shortage of affordable housing options further intensifies the situation, exacerbating these individuals' challenges in their quest for stable and affordable shelter.
When evaluating the approach of using a special needs trust for housing payments, weighing both the advantages and potential drawbacks, particularly concerning SSI classification, is essential. According to SSI regulations, any housing payments from a special needs trust are categorized as In-Kind Support and Maintenance (ISM). This classification can affect SSI benefits, as ISM payments reduce the recipient's monthly SSI grant. If an ISM has a specified value, that amount will be subtracted from the SSI grant up to a predefined limit. For the current year (2025), this deduction cap is set at $342.33, a figure tied to the federal benefit rate and subject to annual adjustments. However, in certain circumstances, it may be beneficial to accept a reduction in SSI benefits for the overall health and welfare of the client, especially in cases of providing safe housing for the individual. Let's explore the reasoning behind this action in detail.
Pam's Story
As mentioned, using SNT funds for housing assistance can be a practical solution in certain situations. To illustrate these challenges and potential solutions, let's explore Pam's story, which provides valuable context for this discussion.
Pam, a sixty-year-old woman from New Bedford, had faced significant challenges related to substance abuse and mental health throughout her life. Over the past several decades, she has undergone numerous interventions in various treatment facilities and has lived in multiple group homes. Due to her history of drug and alcohol use, Pam has developed several health complications, including cirrhosis of the liver and hepatitis. To support her during recovery from her substance use disorder and mental health issues, her parents established a Special Needs Trust (SNT) to allow her to maintain her benefits.
Fortunately, in recent years, Pam's struggles with substance abuse have shown improvement, a result of a combination of pharmacological interventions and counseling that have facilitated the management of her mental health conditions. She successfully transitioned from a group home to a sober house, where the rent was affordable within the framework of her Supplemental Security Income (SSI) benefits, which included meal provisions.
However, in 2023, the closure of the sober house resulted in Pam becoming homeless and being forced to live in a shelter. This instability, combined with the increased risk of exposure to street drugs, significantly heightened her potential for relapse and threatened her existing physical and mental health issues. Pam had applied for subsidized housing; however, the anticipated waiting period was projected to be at least five years.
In 2024, in response to her housing situation, Pam's support team thoroughly investigated private housing options and identified an apartment with a monthly rental cost of $1,350, including utilities. However, this rent surpassed her monthly Supplemental Security Income (SSI) payment. In 2024, the In-Kind Support and Maintenance (ISM) value was capped at $334.33 monthly. Consequently, Pam's SSI payment was adjusted downward from $943 per month to approximately $610 after accounting for the funds utilized from her Special Needs Trust (SNT) to assist with her rent. This reduction was calculated as follows: $943 (original SSI) minus $334 (ISM value) results in approximately $610.
Despite this decrease in her SSI allocation, Pam successfully retained her Medicaid and Supplemental Nutrition Assistance Program (SNAP) benefits. Notably, as of September 2024, food was no longer classified as ISM, enabling her to enhance her food budget through her SNT. The utilization of funds from her Special Needs Trust demonstrated a pragmatic approach for maintaining her safety and health, even in light of the adjusted SSI benefits. This decision supported her overall well-being while preserving her essential benefits.
Ending the SNT
The SNT terminates upon the beneficiary's death. Remainder beneficiaries are identified as individuals entitled to receive any remaining assets from the trust. In the case of first-party or self-funded special needs trusts, any leftover funds must be allocated to reimburse the state's Medicaid division for any services rendered to the beneficiary throughout their lifetime. If there are any assets left after this reimbursement, they typically become part of the beneficiary's estate. On the other hand, third-party or supplemental special needs trusts allow the trust's grantor to determine who the remainder beneficiaries will be.
A Final Word
"A special needs trust serves as an effective tool for individuals who want to support someone with disabilities while maintaining that person's eligibility for government assistance programs that have restrictions on income and assets," said Attorney Connelly. "This type of trust is irrevocable, meaning its assets cannot be seized by creditors or lost due to legal judgments. Establishing a special needs trust requires the expertise of an experienced elder law or disability attorney who can navigate the complexities involved in the process. By doing so, families can ensure that their loved ones receive the support they need while preserving their access to essential government benefits."
Please note that the information provided in this blog is not intended to and should not be construed as legal, financial, or medical advice. The content, materials, and information presented in this blog are solely for general informational purposes and may not be the most up-to-date information available regarding legal, financial, or medical matters. This blog may also contain links to other third-party websites that are included for the convenience of the reader or user. Please note that Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of such third-party sites. If you have any particular legal matters, financial concerns, or medical issues, we strongly advise you to consult your attorney, professional fiduciary advisor, or medical provider.
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