How Does a Special Needs Trust Fund Work?

How Does a Special Needs Trust Fund Work?
How Does a Special Needs Trust Fund Work? (Image: Julia Fuller)

Establishing Trust Fund Parameters

Typical trust funds dissolve once the heirs of the estate reach a certain age that is predetermined by the original trustees, or creators, of the trust fund. Usually, parents who are setting up a trust fund for their children have it dissolve when the youngest child reaches 25 years of age. By that time, the heirs have gained some maturity that should prevent them from wasting their inheritance. However, some children with developmental, neurological, or mental special needs will not be able to handle their own finances as adults, even though they have attained the legal age of accountability. An irrevocable special needs trust can be established for these individuals.

Does Not Affect Governmental Benefits

Many adult individuals with special needs receive government benefits such as Medicaid, SSI, (Supplemental Security Income), subsidized housing, or vocational rehabilitation because they cannot maintain full-time employment to support themselves. In order to qualify for these benefits, a special needs individual under the age of 65 cannot have personal assets exceeding $2000. An inheritance from the dissolution of a trust could eliminate a special needs individual's eligibility for government benefits. However, when a special needs trust is properly drafted, it does not dissolve during the heir's lifetime, except as established in the trust. While the assets in the special needs trust are available to assist with living expenses at the discretion of the appointed trustee, the government does not considered them countable assets to qualify for benefits.


The assets in the special needs trust are controlled by a trustee. The trustee can authorize periodic disbursements or payments for the benefit or care of the special needs heir. These disbursements are allowable for care above what the government provides for the individual. The trust is not limited by the government in the amount of assets it can hold. Disbursements are at the discretion of the trustee, who should try to fulfill the intent of the original estate. The individual may use disbursements from the trust for housing, food, vacations, transportation, or anything else that the trustee deems appropriate.

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