The most commonly used special needs trust is a family-type trust, which is set up by the parents. The parents provide the money for the trust, often by will, and sometimes by purchasing life insurance payable to the trust.

In most cases, the parents write a will giving money or a house to the disabled son or daughter ("Beneficiary.") After the beneficiary has died, anything left over goes to other family members. The left-over is called the "remainder."

Some parents place their property in a "living" or "inter vivos" trust, and provide in the trust that the disabled son or daughter is the beneficiary. With that type of trust, there is no need to wait for the parents to die. The trust becomes effective immediately. This is a good idea for families where aunts, uncles, and grandparents might want to leave money for the trust. Anyone can give money to the trust, either by writing a check or writing a will.

The key to a family-type special needs trust is that the money CANNOT be used for housing, food, or clothing. Those are considered "basic needs" under SSI and Medicaid laws. If the disabled person is receiving free housing, food or clothing from someone else, including a family member or a trust, then the government benefits will be reduced or eliminated.

The trust can be used to purchase a home, and perhaps rent it to the disabled person. The trust can pay for repairs, utilities and taxes for a home; it can purchase furnishings for the home. It can pay for vacations, summer camp, or trips. It can buy bowling shoes or other sporting equipment. It can pay for medical costs not otherwise covered by Medicaid, such as vitamins. It can pay for funeral and burial costs.  It can pay for a lot of things, but it doesn’t have to pay for anything unless the trustee thinks it is a good idea.

The parents generally serve as trustee as long as they are alive. When they die, a successor trustee has to be ready to take over. Some parents choose a bank to serve as trustee, but banks are expensive and do not keep track of the disabled person’s individual needs. A responsible family member is usually a better choice, if one can be found.

There are legal emergencies which a trust can pay for. If the person is not receiving the services he or she needs from Social Security, Medicaid, or other government agencies, the trust can pay for an attorney or other advocate to fight for the individual. Without this type of help, the person might actually become homeless.

If the disabled person gets into trouble with the police, he is vulnerable to being falsely convicted of a crime, and so the trust ought to hire an attorney. The prisons are disproportionately populated with mentally impaired individuals, including those who are intellectually impaired and DD.

The parents can provide the money for this type of trust, and so can other family members, such as grandparents, aunts, and uncles. The only person who cannot place money into this type of trust is the disabled person.

In my opinion, a minimum of $25,000 should be considered for a special needs trust, and more if possible. Some attorneys recommend half a million as a starting point. However, if the family cannot put more than a few thousand dollars into a trust, that is still a valuable resource for the disabled person.  Even smaller trust funds can be of great help, as long as the money lasts.

ATTORNEY TIP:  If you are an attorney helping someone with an estate plan, and there is a child in the family who may need "special education," there is no harm setting up a special needs trust to protect that child.  Suppose the child is not currently receiving any government benefits, but he or she might qualify for benefits in the future.  Why take a chance?  Establish a special needs trust.  Let the trustee distribute the money free of trust if the child reaches adulthood with no apparent need for disability benefits.