What Every Estate Planning Attorney Should Know About Special Needs Trusts

Special needs planning is no longer a niche issue, it affects nearly 1 in 3 families. As estate planning attorneys, we must be equipped to recognize when a client’s plan needs to include a special needs trust (SNT) to preserve eligibility for public benefits and provide meaningful lifetime support.

Core Trust Structures:

• First-Party Trusts (d4A): Funded with the beneficiary’s own assets (e.g., settlements, inheritances received outright). These require Medicaid payback upon the beneficiary’s death.

• Third-Party Trusts: Funded by someone other than the beneficiary—no payback required. These should be your go-to structure for parents or grandparents planning ahead.

• Pooled Trusts (d4C): Cost-effective, nonprofit-managed alternatives—particularly useful for lower asset amounts or late-stage planning.

• Testamentary Trusts: Triggered at death via will; avoid unless cost or asset levels truly preclude a living third-party trust.

  
  

Practice Notes:

• As of September 30, 2024, SNTs can now pay for food without reducing SSI benefits (a major SSA policy shift).

• ABLE accounts remain underused. They’re ideal for working beneficiaries or as complements to SNTs (max $19,000/year in contributions, one account per individual).

  
  

Final Tip: Funding and trustee selection remain the two biggest failure points. Encourage proactive funding and educate clients on selecting trustees with public benefits knowledge, not just financial acumen.