• How to Set Up a Special Needs Trust

How to Set Up a Special Needs Trust

Parents with special needs children often worry about how to secure their child’s future upon their passing. Setting up a special needs trust as part of your estate planning will allow you to leave money or property to a loved one with a disability. A special needs trust, sometimes called a supplemental needs trust, is specially designed for beneficiaries who are disabled, either physically or mentally.  A special needs trust can be used to pay for care-giving, travel, and medical and living expenses. Creating a special needs trust also allows your loved one to remain eligible for SSI or Medicaid benefits and provides for supplemental and extra care over and above that which the government provides. Payments for food and shelter could potentially cut SSI benefits so it is important to set up the trust correctly. If you are researching how to set up a special needs trust for your disabled child, there are inexpensive options available. Read on to learn more about how to set up a special needs trust.

How to Set Up a Special Needs Trust

Creating a special needs trust is part of estate planning. You will need to create a trust document to begin the process. A special needs trust is most often a separate document, but could also be a subtrust of an indivdual person or couple’s trust.  According to Congress, a special needs trust must be irrevocable. As the grantor (the person or business creating the trust), appoint a trustee to manage the trust on behalf of the beneficiary (your loved one with special needs). Sign the trust and deposit some money or other assets into it for it to become effective. Next, contact the IRS to get a tax identification number.  

When considering how to set up a special needs trust, you will need to decide what assets will be used to fund the trust. You can put any type of property into the trust. This includes cash, real estate, stocks, collections, a business, patent, cars, or jewelry. Assets within the trust can be sold to raise more funds. Next, create a will or revocable living trust to put your property directly into the special needs trust.

The most important thing to remember in funding your special needs trust is that the special needs trust, not your child, must be the heir or beneficiary of any funds you or anyone else wants to transfer to your child. 

Once the trust is funded, the trustee must use the funds to support the beneficiary. The trustee is responsible for paying trust taxes, investing trust property, and keeping the beneficiary’s needs up to date.

The trustee will not give the beneficiary money directly. Doing so could interfere with SSI and Medicaid eligibility. The trustee can spend trust assets to buy a variety of goods and services for the beneficiary. The trust will end when it is no longer needed.

You do not need an attorney to set up a special needs trust. At A People’s Choice, we can help you draft all the forms needed to create the trust.

The Pros & Cons of Setting Up a Special Needs Trust

A Special Needs Trust is essential for children and adults who are unable to independently manage their finances. There are several advantages of setting up a special needs trust. For example, a special needs trust can help keep your loved one eligible for SSI and Medicaid and pay for necessities above the amount of benefits the government will provide. Special needs trust are tax-deductible and the funds are strictly used for the care of the person with the disability.

Disadvantages of a special needs trust include the time and possibly monetary requirements to manage the trust. The beneficiary may also experience issues when requesting money from the trustee. The trustee will have full discretion to accept or deny the request. This is why it is important to appoint a trusted  and responsible trustee.

Contact A People’s Choice for more information on how to set up a special needs trust for your loved one.  We prepare special needs trusts and offer full service estate planning document preparation for California residents and other states.

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By |2018-01-18T15:46:54-07:00May 22nd, 2016|Estate Planning|5 Comments

About the Author:

Sandra M. McCarthy, founder of A People’s Choice Inc., has worked exclusively in the legal field since 1976. She served as the 2004-2005 President of CALDA (California Association of Legal Document Assistants). She obtained a Paralegal Certificate from the University of California, Santa Barbara. During her career in the legal field, she has worked as a freelance paralegal, law office manager and paralegal studies teacher, and has co-authored numerous legal publications and written hundreds of self-help legal articles. As a registered Legal Document Assistant, Sandy is dedicated to providing affordable, low-cost, self-help document preparation services for California consumers in all 58 counties.


  1. Jennifer March 21, 2019 at 1:34 am

    I’m a 62 year old disabled child (Social Security Disabled, “SSDI”) of a 92 year old Medicaid recipient.

    My Mother passed October, 2018 leaving all monies and Worldly possessions to my Dad as her beneficiary. She had NOTHING to leave my Dad.

    Now, I’ve filed a potential personal injury lawsuit (worth approximately $85K) on behalf of my Mother AND my Father (Worh approximately $95K) and while my Father is still alive, I need to know which TRUST would I need to put into place to preserve and protect my Father’s Medicaid benefits which pays for his longterm Nursing Home?

    The State in which the Nursing Home my Father resides in and where I also reside is the great State of Texas, if that matters.


    • Sandy McCarthy March 29, 2019 at 9:59 pm

      Talk to an attorney for legal advice.

  2. HD November 21, 2018 at 9:15 am

    I work for a nonprofit and we have setup the company as a trustee for a client. I am the representative of the trustee and am having difficulty setting up a special needs trust. We’ve tried several local banks and all are taking issue with the fact that the nonprofit is the trustee as opposed to a single person. Any advice?

  3. Carol Efaw October 25, 2018 at 7:35 am

    Is it possible to set up a Special needs trust where I am the trustee for my brother? He is physically disabled but did not become disabled prior to the age of 26.

    • Sandy McCarthy October 25, 2018 at 9:37 pm

      Yes that would be possible.

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