How Do Special Needs Trusts Safeguard Benefits for Loved Ones with Disabilities?

Caring for a loved one with disabilities comes with unique financial and legal challenges. Beyond the day-to-day responsibilities, families often worry about how to protect benefits such as Supplemental Security Income (SSI) or Medicaid while still providing for additional needs. Without proper planning, financial support can unintentionally jeopardize these crucial benefits.

At the Law Offices of Gary R. Kershner, I help families in Oakland, California, and throughout the Bay Area, including Berkeley, Alameda, Emeryville, Rockridge, Piedmont, Fruitvale, Fremont, San Jose, San Francisco, and beyond, establish plans that safeguard the financial security of their loved ones. 

One of the most effective tools for this purpose is a special needs trust, which allows families to provide for their loved ones without threatening eligibility for government assistance programs. Keep reading for more information from an experienced trust lawyer.

Special Needs Trusts and Their Benefits

A special needs trust is a legal arrangement that holds assets for a person with a disability while allowing them to retain eligibility for public benefits. These trusts can be set up by a parent, grandparent, or legal guardian, or even by the individual themselves under certain circumstances.

The key benefit is that the trust can cover expenses beyond what government programs cover, giving families the freedom to provide a higher quality of life for their loved ones.

Special needs trusts are constructive because they keep assets separate from the individual’s personal income and resources. This separation prevents large inheritances, settlements, or savings from disqualifying someone from receiving SSI, Medicaid, or other essential benefits.

These trusts act as a financial buffer, allowing families to provide extra support while preserving critical public assistance.

Responsibilities of a Trustee

The trustee plays a central role in managing a special needs trust. This person is responsible for overseeing the trust and making distributions in accordance with the beneficiary’s needs and the trust’s rules. Trustees may be family members, close friends, or professional fiduciaries. A good trustee must:

• Understand government benefits: They need to know what expenses the trust can cover without affecting eligibility. This knowledge helps prevent mistakes that could unintentionally reduce benefits.

• Maintain meticulous records: Proper accounting protects both the trustee and the beneficiary. It also confirms transparency and helps families plan future distributions more effectively.

• Make thoughtful distributions: The goal is to improve quality of life without triggering reductions in public benefits. Thoughtful distributions give the beneficiary access to resources that would otherwise be unavailable, enhancing independence and well-being.

Having a trustee who is committed and knowledgeable helps families feel confident that their loved one will be cared for properly. A reliable trustee confirms the trust fulfills its purpose while adapting to the beneficiary’s evolving needs.

Different Types of Special Needs Trusts

There are different types of special needs trusts designed for specific situations. Choosing the right type depends on the source of funding, the beneficiary’s needs, and the family’s long-term goals.

• First-party special needs trust: Funded with assets belonging to the beneficiary, often used when a person receives a personal injury settlement or inheritance. Medicaid typically has the right to recover funds from this trust after the beneficiary's death. This type provides immediate protection while preserving benefit eligibility.

• Third-party special needs trust: Funded by someone other than the beneficiary, such as a parent or grandparent, and not subject to Medicaid recovery. This type is commonly used for inheritances or gifts. It allows families to plan legacy support without risking public benefits.

• Pooled special needs trust: Managed by nonprofit organizations, pooling assets from multiple beneficiaries while keeping separate accounts for each. This option can be cost-effective for families who don’t want to manage a private trust. It also provides professional oversight while assuring individualized care.

Each type has advantages, and families should decide which trust structure fits best with their unique situation. Understanding these differences helps confirm the beneficiary's long-term financial protection.

Protecting Benefits Through a Special Needs Trust

One of the main reasons families use special needs trusts is to protect eligibility for government benefits. Programs like SSI and Medicaid have strict asset limits, and even small amounts of cash or property can disqualify someone from receiving assistance. A special needs trust helps avoid this problem. The trust can cover:

• Medical and dental care not covered by insurance: Including therapies, specialized equipment, or elective procedures. Using trust funds for these needs confirms the beneficiary receives care beyond what government programs offer, without risking benefits.

• Educational and recreational activities: Summer camps, tutoring, adaptive sports, or vocational training. These activities promote skill-building and social growth, enhancing overall quality of life.

• Personal care items: Clothing, hygiene products, or sensory tools that enhance daily living. These purchases contribute to comfort and independence while maintaining eligibility for public assistance.

• Transportation and travel: Including adapted vehicles, gas, or public transportation costs. Trust-funded travel supports independence and access to community resources.

Paying for these expenses directly from the trust allows the beneficiary to enjoy an improved quality of life without risking public benefits. Using a special needs trust in this way gives families peace of mind, knowing that everyday needs and occasional extras are covered.

Clearing Up Misconceptions

Many families hesitate to use special needs trusts because of common misconceptions. Understanding these facts can make the process less intimidating.

• Misconception: The trust prevents the beneficiary from having any assets
  Reality: The trust actually allows the beneficiary to access resources that government programs don’t cover. Families often find these funds improve independence and comfort while keeping benefits intact.

• Misconception: Only wealthy families can benefit
  Reality: Even modest assets, inheritances, or gifts can be protected in a special needs trust. Every family can create a plan that suits their financial situation.

• Misconception: The beneficiary loses control over their money
  Reality: While the trustee manages the trust, distributions are made with the beneficiary’s best interests in mind. The trust provides structure while respecting the beneficiary’s preferences.

Clearing up these misunderstandings encourages families to act confidently and take steps to protect their loved ones. Early planning strengthens security for the future.

Special Needs Trusts in Estate Planning

Integrating a special needs trust into broader estate planning creates a comprehensive plan that protects assets and secures the beneficiary’s long-term care.

Some points to consider include:

• Beneficiary designations: Naming the trust as a beneficiary on retirement accounts or insurance policies. This directs funds appropriately and preserves benefits.

• Coordination with guardianship plans: Making sure the trustee and guardian work together to support the beneficiary. Collaboration strengthens oversight and reduces family stress.

Combining these elements gives families confidence that their loved one will be cared for regardless of future circumstances. When estate planning and special needs trusts are combined, they create a robust plan that safeguards financial and personal security.

Comprehensive Legal Guidance

If you have a loved one with disabilities, a special needs trust can safeguard benefits while providing resources to improve their quality of life. I work with families in Oakland and throughout the Bay Area, including Berkeley, Alameda, Emeryville, Rockridge, Piedmont, Fruitvale, Fremont, San Jose, and San Francisco, to create trust solutions that protect the future. 

Planning with a special needs trust can give your family peace of mind and protect your loved one’s benefits for the future. Reach out to me at the Law Offices of Gary R. Kershner today to discuss how a special needs trust can help your family.