How to Set Up a Special Needs Trust

Include trust fund assets in your will.
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A special needs trust is an estate-planning tool designed to care for a person with a verified substantial mental or physical disability without affecting Supplemental Security Income and Medicaid benefits. However, while it can ensure that a disabled loved one continues receiving quality care after you die, Amos Goodall, an elder law attorney and member of the Special Needs Alliance, said in a 2013 article on Bankrate.com that "setting up a special needs trust is not a do-it-yourself project." Professional guidance is essential.

How It Works

According to Heath Burch of the Special Needs Planning Center in Kansas City, Missouri, a third-party trust is the most common. With this type, you create the trust structure, fund it with a minimal amount now and then designate estate assets, such as life insurance, your home or a cash inheritance, to fund the trust after you die. Other people, such as a grandparent, an extended family member or friend, can also designate assets in their wills to go to the trust. The trustee can then use funds to supplement income from SSI and Medicaid benefits, and pay for things like personal care attendants, vacations, education and recreation.

Choose an Attorney

Because even one wrong word can negate the trust, it's vital to work with an attorney in drawing up the required legal documents. The National Alliance on Mental Illness recommends that you research and interview a number of candidates to find the best attorney available. Consider whether the attorney has experience in special needs trusts, is up to date on any Social Security, Medicaid and the Department of Mental Health rules, and follow up on any references he provides.

Name a Trustee

Take great care in choosing a trustee, both because a trustee has broad discretionary powers and authority to manage the trust and distribute its assets on behalf of the beneficiary and because effective administration requires a lot of work. NAMI recommends that you name a family member as the main trustee and a professional trust administrator as a co-trustee. By doing this, you have someone who can be responsive and attentive to the needs of the beneficiary and someone well-versed in trust management and administration tasks.

Fund the Trust

Estimate how much money the beneficiary will require, specify funding sources and include these in your will. First, estimate the funds required to care for the beneficiary while you're still alive and then identify which remaining assets to use in funding the trust. If you need help, the MetLife Center for Special Needs Planning has a free calculator for estimating expenses. According to Nolo.com, you can designate almost any type of property or asset, including real estate, stocks, valuable collections and jewelry. After funding the trust, draft a letter of intent and attach it to the trust. In it, specify how you want the funds to be used and include notes about the beneficiary's likes and dislikes.

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