How Special Needs Trusts Work
Understanding how special needs trusts work helps families protect benefits while improving the daily life of a loved one with a disability. A special needs trust separates ownership from benefit. The trust owns the assets. The trustee controls spending. The beneficiary receives support without losing SSI or Medicaid. Because the beneficiary does not own the funds, the assets usually fall outside strict SSI and Medicaid resource limits. You can review these limits through the SSI Eligibility Guidelines and the Medicaid Eligibility Center.
How a Special Needs Trust Is Structured
The structure explains how special needs trusts work on a practical level. Every trust includes a grantor, trustee, and beneficiary. The grantor creates and funds the trust. The trustee manages investments, pays expenses, and follows the trust language. The beneficiary receives items or services that improve quality of life but do not affect public benefits. This design keeps control with the trustee and protects program eligibility. The SSA’s trust rules are available through the SSA POMS Trust Section.
- Grantor: The person who creates and funds the trust.
- Trustee: The person or entity responsible for administration and financial management.
- Beneficiary: The person with a disability who receives support.
This structure allows the trust to stay flexible while meeting federal and state rules. Because the trustee has full control, the beneficiary keeps access to critical benefits.
How Special Needs Trusts Are Funded
Funding methods also shape how special needs trusts work. Families can fund an SNT during life or at death. Many choose life insurance because it provides predictable support. Others add inheritances, family gifts, or lawsuit settlements. A balanced investment strategy helps the trust last for the beneficiary’s lifetime. The trustee should consider age, health needs, expected expenses, and risk tolerance when selecting investments.
- Life insurance payouts
- Gifts from family members
- Inheritances directed into the trust
- Personal injury or disability settlements
Some families also use ABLE accounts to increase flexibility. You can learn more at the ABLE National Resource Center.
How Trustees Make Distributions
Distribution rules define how special needs trusts work in daily life. The trustee pays vendors directly for approved items rather than giving the beneficiary cash. Direct cash can count as income and reduce SSI. Paying vendors helps avoid that issue. Many trustees cover expenses such as transportation, therapies, education, technology, recreation, and care services. These items improve comfort and growth without affecting eligibility.
- Therapies and medical items not covered by insurance
- Education and training programs
- Adaptive equipment and technology
- Transportation and travel
- Internet, phone, and home support services
Trustees should track spending carefully. Records show how each payment supports supplemental needs rather than basic food or shelter. Programs like SSI treat certain food and shelter payments differently, so professional guidance prevents accidental reductions.
Ongoing Oversight and Compliance
The final part of how special needs trusts work involves review and updates. Benefit rules change often. Family needs shift. A trust built years ago may need revised instructions, successor trustees, or updated distribution guidelines. Ongoing oversight protects eligibility, reduces mistakes, and prepares for future transitions. Many families meet yearly with an attorney to update documents and review program changes.
Contact Metropolitan Law Group
If you want help understanding how special needs trusts work or need a plan designed for Arizona, Minnesota, or Wisconsin, contact Metropolitan Law Group. Call 480-409-8200 in Arizona or 612-524-9414 in Minnesota and Wisconsin. You can also book a complimentary 15 minute Discovery Call with a knowledgeable staff member today.
