Special Needs Trusts

Special needs trusts are a wonderful tool to provide for a disabled person who currently receives or may later receive Medicaid or TennCare benefits. When a special needs trust is properly created and funded, the disabled person can continue to receive government benefits that are means tested such as Supplemental Security Income (SSI) and TennCare Medicaid benefits. The funds in the special needs trust are used to provide for the disabled person’s “supplemental needs.” There are certain restrictions on the use of the funds, especially when a person receives Social Security Supplemental Income also known as “SSI”.

A special needs trust may be a “self-settled special needs trust” or a “third party special needs trust.” A self-settled special needs trust is funded with the disabled person’s personal funds (usually a windfall from a personal injury suit or an inheritance). There are certain strict statutory requirements for when and who may create this type of trust. A self-settled special needs trust must contain a payback provision. Thus, when the beneficiary dies, any funds remaining in the self-settled special needs trust must be used to first pay back the Medicaid system before funds are distributed to family members.

A third party special needs trust is established by a person (Trustor) in his/her will, living revocable trust, or as a stand-alone trust for the benefit of a disabled person. This trust does NOT contain a payback provision. This trust is used to provide for those needs of the disabled person not met by the government benefits, and there are certain restrictions. When the beneficiary dies, the funds remaining in the trust are distributed according to the Trustor’s wishes.

To learn more about Special Needs Trusts, please download our booklet “10 FAQs About Special Needs Trusts”. This booklet provides a thorough explanation of the types of Special Needs Trusts, and real life examples of how Special Needs Trusts have benefited disabled persons and families.

For more information about trusts in general, please refer to our page about Wills.