Can a Beneficiary Control a Special Needs Trust?

A Special Needs Trust (SNT) is a crucial legal tool designed to provide financial support for individuals with disabilities without jeopardizing their eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid. A common question that arises is whether the beneficiary- the person for whom the trust is created- can control the trust.

The short answer is no-a beneficiary cannot have direct control over a Special Needs Trust. The legal structure of an SNT is designed to prevent the beneficiary from making financial decisions about the trust assets, which is essential for maintaining their eligibility for public assistance programs. However, the trustee, who manages the trust, has a duty to act in the beneficiary's best interest.

Why Can't a Beneficiary Control a Special Needs Trust?

1. Preserving Government Benefits

For a Special Needs Trust to serve its intended purpose, it must ensure that the assets held in the trust do not count as the beneficiary's personal resources. If the beneficiary had control over the trust funds, government agencies could classify the assets as "available resources," disqualifying them from benefits like SSI or Medicaid.

2. Legal Structure of the Trust

A properly drafted SNT appoints a trustee who is responsible for managing the trust assets and making distributions for the beneficiary's benefit but not directly to them. This ensures that funds are used for expenses that improve the beneficiary's quality of life while keeping them financially eligible for public assistance.

3. Protection from Mismanagement and Creditors

Many individuals with disabilities may be vulnerable to financial exploitation or may not have the capability to manage large sums of money effectively. By preventing the beneficiary from controlling the trust, an SNT safeguards assets from mismanagement, creditors, and legal judgments.

Who Controls a Special Needs Trust?

The Role of the Trustee

A trustee is appointed to manage the Special Needs Trust, and their responsibilities include:

Overseeing the trust's investments and distributions.
Ensuring that distributions do not interfere with public benefit eligibility.
Using trust funds for approved expenses, such as medical care, education, transportation, and personal enrichment.
Filing trust tax returns and maintaining financial records.

The trustee can be:

A family member or close friend who understands the beneficiary's needs.
A professional trustee such as an attorney, financial institution, or nonprofit organization.
A corporate trustee, which can provide experienced financial management but may charge higher fees.

Can a Beneficiary Have Any Say in the Trust?

While a beneficiary cannot control the trust, they may have some influence over their care and well-being by:

Communicating their needs and preferences to the trustee.
Suggesting how trust funds should be used for their benefit.
In some cases, serving as a co-trustee (though this is uncommon and must be structured carefully to maintain benefit eligibility).

Can a Beneficiary Remove or Replace a Trustee?

Generally, the trust document specifies whether the beneficiary or other parties have the right to replace the trustee. In some cases, a court may allow a trustee to be replaced if they are mismanaging funds or failing in their fiduciary duty.

What Can a Special Needs Trust Pay For?

A Special Needs Trust (SNT) is designed to enhance the beneficiary's quality of life while preserving their eligibility for government benefits. Since funds from the trust cannot be given directly to the beneficiary, the trustee must use them for approved expenses.

Approved Expenses for a Special Needs Trust

While the exact rules may vary, trust funds are generally used for:

Medical and dental care (not covered by Medicaid or insurance)
Rehabilitation and therapy services
Assistive technology and medical equipment (e.g., wheelchairs, hearing aids)
Education and training programs
Personal care attendants and caregivers
Housing and home modifications (if structured correctly to avoid benefit disqualification)
Transportation costs (including vehicle purchases, if used for the beneficiary)
Recreational and cultural experiences (such as vacations, hobbies, and concerts)
Legal and financial services
Household items and furniture

Expenses That May Disqualify a Beneficiary from Benefits

If trust funds are used for food or shelter-related expenses, the Social Security Administration (SSA) may consider them as countable income, reducing or eliminating SSI benefits. These include:

Rent or mortgage payments
Utility bills (electricity, gas, water)
Direct cash payments to the beneficiary

However, strategic planning by an experienced estate planning attorney can help minimize these impacts while maximizing trust benefits.

Approved vs. Non-Approved Expenses for a Special Needs Trust

Approved Expenses	Non-Approved Expenses (May Affect Benefits)
Medical expenses not covered by Medicaid	Direct cash payments to the beneficiary
Education and vocational training	Rent or mortgage payments (may reduce SSI)
Transportation costs (including modified vehicles)	Utility bills (electricity, water, gas)
Assistive technology and adaptive equipment	Groceries and food purchases
Personal care attendants and caregivers	Paying for shelter-related costs directly
Entertainment, travel, and recreation	Expenses not in the beneficiary's best interest
Household items and furniture	Anything that violates trust guidelines

Types of Special Needs Trusts

There are three main types of Special Needs Trusts, each with distinct rules regarding control and funding:

1. First-Party Special Needs Trust (Self-Settled SNT)

Funded with the beneficiary's own assets, such as an inheritance or lawsuit settlement.
Must be irrevocable to qualify for government benefits.
Requires a Medicaid payback provision, meaning any remaining funds must be used to reimburse Medicaid upon the beneficiary's death.

2. Third-Party Special Needs Trust

Funded by parents, family members, or other third parties.
Does not require Medicaid payback, allowing assets to be passed to other heirs after the beneficiary's death.
A trustee manages distributions for the beneficiary's benefit.

3. Pooled Special Needs Trust

Managed by a nonprofit organization, which pools assets from multiple beneficiaries while maintaining separate accounts.
Available to individuals of any age.
Often used when there is no available trustee or when a smaller trust fund needs professional management.

Differences Between First-Party and Third-Party Special Needs Trusts

Feature	First-Party Special Needs Trust	Third-Party Special Needs Trust
Who Funds It?	The beneficiary (e.g., inheritance, lawsuit settlement)	Parents, relatives, or other third parties
Who Can Create It?	Beneficiary (if legally competent), parent, grandparent, legal guardian, or court	Anyone except the beneficiary
Affects Government Benefits?	No, if properly structured	No, if properly structured
Medicaid Payback Requirement?	Yes - Remaining assets must reimburse Medicaid after the beneficiary's death	No - Assets can be left to other heirs
Control Over Assets	Managed by a trustee; beneficiary has no direct access	Managed by a trustee; beneficiary has no direct access
Common Use Cases	Protecting personal injury settlements, inheritances received directly by the beneficiary	Parents setting aside assets for a child with disabilities

Can a Beneficiary Ever Be a Trustee?

In almost all cases, a Special Needs Trust beneficiary cannot serve as a trustee because:

It would give them control over trust assets, potentially disqualifying them from public benefits.
A trustee must act in the best interest of the beneficiary, which could create conflicts of interest.
The legal structure of the trust requires independent management to ensure compliance with government benefit rules.

However, in some instances, a co-trustee or advisory role can be created, allowing the beneficiary to have input on how funds are used without jeopardizing eligibility.

Choosing the Right Trustee for a Special Needs Trust

Selecting the right trustee is critical to the success of an SNT. Key factors to consider include:

Financial and legal knowledge - The trustee must understand benefit programs and trust management.
Fiduciary responsibility - Trustees have a legal duty to act in the best interest of the beneficiary.
Understanding of the beneficiary's needs - The trustee should be familiar with the individual's disability, medical care, and lifestyle preferences.
Availability and reliability - Managing a trust requires time and effort, so the trustee should be willing and able to take on the responsibility.

In some cases, a professional or corporate trustee may be a better option to ensure proper administration and compliance.

Contact an Attorney for Special Needs Trust Planning

If you are considering setting up a Special Needs Trust for a loved one, it is essential to work with a knowledgeable estate planning attorney who understands the complexities of trust administration and government benefit eligibility. At Heritage Law Office, we can help you create a trust that protects your loved one's financial future while maintaining their access to essential public benefits.

Contact us today by using our online form or calling 414-253-8500 to schedule a consultation.

Frequently Asked Questions (FAQs)

1. What is the main purpose of a Special Needs Trust?

A Special Needs Trust (SNT) is designed to provide financial support for individuals with disabilities without affecting their eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid. It ensures that trust funds are used to enhance the beneficiary's quality of life while maintaining public assistance.

2. Can a beneficiary request specific distributions from a Special Needs Trust?

Yes, a beneficiary can communicate their needs and preferences to the trustee, but the final decision on distributions is up to the trustee. The trustee must ensure that distributions comply with government benefit rules and serve the beneficiary's best interests.

3. Does a Special Needs Trust affect Medicaid eligibility?

No, a properly structured Special Needs Trust does not affect Medicaid eligibility because the beneficiary does not have direct access to trust assets. However, a first-party Special Needs Trust must include a Medicaid payback provision, meaning any remaining funds may be used to reimburse Medicaid after the beneficiary's death.

4. Can a family member serve as a trustee for a Special Needs Trust?

Yes, a family member can serve as a trustee, but it is essential that they understand the legal and financial responsibilities involved. In some cases, hiring a professional or corporate trustee may be a better option to ensure proper management and compliance with benefit rules.

5. How is a Special Needs Trust different from a regular trust?

A Special Needs Trust is specifically designed to hold assets for a disabled individual without disqualifying them from government assistance. Unlike a regular trust, an SNT follows strict rules regarding distributions and beneficiary control to protect public benefit eligibility.