Special Needs Trust

How does a Special Needs Trust work?

This type of Trust is designed to hold money for the benefit of a disabled person.  It can be part of your estate plan if you wish to provide for a loved one who is disabled, without causing that person to lose government benefits.  Leaving money to someone who receives Social Security Disability, SSI or Medicaid can be complicated.  This person may lose the benefits he or she relies on each month.  The best way to ensure the beneficiary is still provided for during his or her lifetime is to set up a Special Needs Trust. 

You choose a Trustee to manage and spend the money for the benefit of the disabled beneficiary only.  If set up correctly, the Trust funds will not be counted as an asset of the beneficiary.  This allows the beneficiary to continue receiving necessary government benefits, while also receiving the benefit of the inheritance you leave through this Trust.  This Trust is a great way to improve the quality of life of a disabled beneficiary.

However, Kentucky has strict rules and guidelines for Special Needs Trusts.  You need an Attorney with experience in this specific area.  Failing to set up this Trust correctly can jeopardize the beneficiary’s government benefits and the inheritance you leave.  You can rely on the experience of Bauman Estate Planning to help you plan for a loved one who is disabled.

What are the different types of Special Needs Trusts

Third-Party Special Needs Trusts – This is a Trust set up by someone other than the beneficiary with money or property that does not already belong to the beneficiary.  This type of Trust is often called a Supplemental Needs Trust.  Thinking about it in those terms, the Trust funds are meant to supplement, but not replace, the government assistance that your loved one is entitled to receive. 

For example, perhaps you have a disabled child who receives Disability and Medicaid benefits.  You want to make sure your child is taken care of after your gone, but you don’t want your child to lose those government benefits.  You can have funds placed into a Special Needs Trust for that child after you pass away.  The Trustee can use the money for the benefit of your child.  In addition, after the disabled beneficiary passes away, you can choose where any remaining funds go (other family members, a charity, etc.).

First-Party Special Needs Trusts – This is a Trust set up by the beneficiary with money or property that already belongs to that person.  For example, perhaps someone left money to a disabled child through a Will instead of a Special Needs Trust.  If the disabled beneficiary receives this inheritance, he or she could lose government benefits.  Because the inheritance is now considered an asset of the beneficiary, the funds need to be placed into a Special Needs Trust before benefits are lost.  The big difference is that when the beneficiary passes away, any remaining funds must go to Medicaid.  You can see how this scenario really changes what ultimately happens with the Trust funds.  If you want to leave assets to a disabled person, don’t wait to set up a Special Needs Trust with Bauman Estate Planning.

What can the money in a Special Needs Trust be used for?

The main purpose of a Special Needs Trust is to provide for a disabled beneficiary in a way that his or her government benefits cannot.  These funds are held by the Trustee for this reason only and Kentucky has strict guidelines on how these funds can be spent.  Staying within these guidelines, it is up to the Trustee to determine how to spend the Trust funds for the disabled beneficiary.  

Here are some examples of how the Trustee may choose to spend the money:

  • Medical, dental, therapy, and rehab expenses not covered elsewhere
  • Special medical equipment (wheelchair, accessible vehicle, etc.)
  • Home and vehicle repairs
  • Computer, TV, or electronic equipment
  • Cable, phone, and internet services
  • Education
  • Vacations (including the cost of a companion)
  • Recreation and entertainment (movies, sports, social events, etc.)

The Trustee should never give money directly to the disabled beneficiary.  The money instead should be used directly to purchase items or services for the benefit of the disabled beneficiary.  The funds should be used to provide for the beneficiary’s health, comfort, support, and welfare in a way that his or her government benefits cannot.  You can see from the list above that a Special Needs Trust can greatly improve the quality of life of a disabled beneficiary.

If you have a loved one who is disabled, you should consider a Special Needs Trust.  Bauman Estate Planning has experience with these Trusts and we are happy to help you come up with the right plan for you.  I can meet you at either my Dixie Highway or Breckenridge Lane office.  We can also discuss your situation by phone or Zoom if you prefer. 

Here are some links to other Kentucky estate planning documents I can help you with:


General Durable Power of Attorney       

Medical Power of Attorney

Living Wills

Revocable Living Trusts

Asset Protection Trusts

Special Needs Trusts

Call Bauman Estate Planning today at (502) 267-7967 or click on the link at the top of the page to schedule a phone call or in-person meeting with Jason.