Caring for those in Need

Securing Your Child’s Future: The Importance of Special Needs Trusts

A parent’s wish is that their child grows to be an independent, productive member of their community. For parents with a child with a disability, a different approach may be necessary to achieve independence and inclusion within the community.

BY Bianca Farr | November 2023 | Category: Financial Planning

Securing Your Child’s Future: The Importance of Special Needs Trusts

“What will happen when I’m gone?” This is the universal question that parents and family members ask when planning for their child’s future – and especially when planning for the future of a child with a disability. Will their loved one be taken care of? Can their child receive an inheritance or life insurance proceeds – and what will happen to those funds, if they do? How do families ensure that their child keeps their public benefits (Medicaid, Social Security, SNAP benefits, housing)? Will their loved one have a good quality of life? No one can predict the future, but proper planning can offer families some hope and security.

Aspecial needs trust is one financial planning tool available to help parents plan for the future of their child with a disability. A special needs trust is established for the benefit of the individual with the disability, and allows individuals to receive funds without being disqualified from receiving public benefits. The individual can use the funds in the trust for their supplemental needs, such as: clothing, dental care, medical expenses, travel, entertainment, and personal needs. Some expenses cannot be paid for using funds in the trust, such as: rent or mortgage payments, basic utilities, and groceries. Cash cannot be provided to the beneficiary, nor can the beneficiary be repaid. Those expenses and scenarios could negatively impact public benefits.

There are two types of special needs trusts: 

First-party trusts

  • Are established by the individual with their own assets – or established by a parent, grandparent, guardian, or court for the benefit of the individual with a disability.
  • Are irrevocable.
  • Require Medicaid Payback.
  • Funded typically from back pay from Social Security, unplanned inheritance, and a settlement from a lawsuit.

Here is an example of a first-party trust. At the age of 15, Emily was injured in a car accident that left her paralyzed from the waist down. Tragically, her mother perished in the accident. With funds from the personal injury settlement, Emily’s father established a first-party trust which ensures the protection of Emily’s public benefits. She can access the funds for her supplemental needs like going to the movies with friends, taking a summer vacation, and shopping for new clothes. 

Third-party trusts

  • Are established by the donor, rather than the individual with a disability.
  • Are funded by the donor’s assets, life insurance policies, personal funds, or wills and estates.
  • Can be revocable or irrevocable.
  • Do not require a Medicaid Payback.
  • If the beneficiary passes away, any remaining funds in the trust will be re-distributed per the donor’s wishes.

The following scenario is an example where a third-party trust is a good choice. Johnny was born prematurely at 32 weeks. He was diagnosed with Down Syndrome and other medical conditions. He is now 10 years old and thriving, but still has several hurdles to overcome on his way to independence. The possibility that he may require lifetime support is a real and pressing concern. His family began talking about what they could do now to prepare for Johnny’s future. For Johnny’s family, a third-party trust may be a great option. His parents and/or other family members can leave an inheritance or monetary gifts to Johnny, that would not impact his public benefits.

To assist families with understanding and setting up trusts, more than 100 pooled trust organizations exist across the United States. Pooled trust organizations may be specific to certain states, or regions, or may serve the entire nation. For example, Midwest Special Needs Trust (MSNT) is a pooled trust, nonprofit organization that offers each of these trust types (first, third, and inactive) and serves the Midwest region.

A pooled trust organization maintains separate accounts for each beneficiary, but the assets are pooled for investment and management purposes. The pooled trust organization serves as trustee of the trust, but co-trustees can be designated to represent the beneficiary's interests.

For families unsure of what route to take in their financial planning, an inactive special needs trust is an option. This type of trust may be established with as little as $200 and assumes that additional funds will be deposited later. It provides families with the time to plan for their child’s future. There are no fees for this type of trust while it is inactive.

When using a pooled trust organization, a percentage of funds from each closed trust will be donated to that organization’s charitable fund. The charitable fund distributes funds back into the community to help other individuals with disabilities.

A special needs trust may help answer the question, “What will happen to my child when I’m gone?” This important financial tool may provide peace of mind that your child’s future is secure and that they will be well taken care of long after you are gone. With careful planning and foresight, parents can help ensure that their loved one has the financial resources needed to live a comfortable and full life. 


Bianca Farr, MSW, LCSW, serves as executive director of Midwest Special Needs Trust. Since graduating from the University of Missouri with a BA in Psychology and a Master’s in Social Work, she has devoted her career to enhancing the quality of life for people of all abilities. Her experience includes over 22 years in state government as a mental health professional working with individuals/ families with disabilities and policy development for behavioral health programs. Before MSNT, she served as the director of Employment Services for the Missouri Department of Mental Health, Division of Behavioral Health. In this role, she promoted the importance of supported employment and financial well-being of individuals with mental health and/or substance use disorders. 

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