Financial Services

Creating a special needs trust? Here are the costs, what you need to know and who to use


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Special needs trusts are essential for the well-being of a person with special needs, experts say.

“The most important reason for a special needs trust is that individuals with special needs often are unable to make appropriate financial decisions for themselves and/or are at risk for financial exploitation by others,” said certified financial planner Mike Walther, founder of Oak Wealth Advisors in Northbrook, Illinois.

Equally important, according to Charles Italiano, assistant director of Westchester Disabled On the Move in Yonkers, New York, “is to maintain eligibility for public benefits such as [Supplemental Security Income] and Medicaid, and enable children with special needs to have a fulfilling life.”

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Why do many people with special needs need to be on government assistance?

Because the cost of care can be astronomical, said Michael Beloff, partner and Chartered Special Needs Consultant with Belvedere Wealth Partners in Stamford, Conneticut.

For example, daytime support services for a severely impaired individual can run more than $100,000 per year, while a group home in the Northeast can run from $140,000 to $300,000 per year, he said.

“Depending on the nature of the impairment of the individual, most families cannot afford to fund these services out of their pockets during their lives and after their passing,” he said. “That’s where Medicaid comes in.”

As SSI and Medicaid recipients are allowed limited income and only $2,000 in liquid assets, it becomes imperative that families shelter assets in special needs trusts to ensure their loved ones do not lose this life-saving government financial support.

Special needs trusts should be drafted as soon as the child has a special needs diagnosis, Walther said.

Two types of trusts

There are two kinds of special needs trusts. Ideally, you need both, according to Italiano.

• Third-party: “This type of trust is funded with the parents’ money, solely for the child’s need, and will never be in the child’s name,” Italiano said. “After the parents pass away, the funds go to someone other than the child.”

These are most often funded with insurance and funds from the parents’ estate and can be set up without funds at first, Beloff said.

Once funded, the trust has its own tax ID number and its own tax return must be filed. These funds are meant to cover expenses that Medicaid or SSI do not cover, such as travel, clothes, computers, etc.

Watch for conflicts of interest if the trustee is also the ultimate beneficiary.

Michael Beloff

Chartered Special Needs Consultant with Belvedere Wealth Partners

“It’s a way to ensure that the money will be there and will be overseen by a qualified trustee, such as a family member, a friend, or an outside party such as a bank or a non-profit,” Beloff said. “Watch for conflicts of interest if the trustee is also the ultimate beneficiary.”

It’s important to let other family members know they should make any gifts or bequests to the trust so as to avoid negative effects on the special child’s eligibility for Medicaid, said attorney Ray Falcon, principal of Falcon Law Group in Woodcliff Lake, New Jersey.

• First-party: This trust is created with the individual’s own assets to shelter any income, whether earned or inherited, in order to not exceed Medicaid income and asset limits. Distributions must be approved by the trustee, Italiano explained.

“This type of trust may have a payback provision, such that any funds left over after the individual passes go to pay back cumulative Medicaid expenditures,” he said.

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