Top Tips When Drafting a Third-Party Special Needs Trust
When a loved one has a disability, one of the most important estate planning steps you can take is creating a Special Needs Trust (SNT) — a tool that protects their eligibility for public benefits while ensuring they receive the care and comfort they deserve. But when someone other than the beneficiary (like a parent or grandparent) funds the trust, it’s called a Third-Party Special Needs Trust — and drafting it correctly is critical. Small mistakes can have big consequences. Here are the top tips to help you get it right.
Understand What a Third-Party SNT Is
A third-party special needs trust is established and funded by someone other than the person with a disability — usually a parent, grandparent, sibling, or other family member.
Unlike a first-party SNT, which holds the beneficiary’s own assets (such as lawsuit proceeds or inheritance), a third-party SNT does not require a Medicaid payback provision when the beneficiary passes away.
This makes it one of the most flexible and powerful tools for long-term support.
2️⃣ Protect Public Benefits Eligibility
The key purpose of a Special Needs Trust is to preserve eligibility for government benefits such as:
SSI (Supplemental Security Income)
Medicaid
Section 8 housing
SNAP (food assistance)
Funds in a properly drafted SNT should not be counted as the beneficiary’s assets.
Tip: Avoid language that gives the beneficiary direct control or access to trust funds. The trustee should have sole discretion over distributions.
3️⃣ Be Careful with “Health, Education, Maintenance, and Support” (HEMS) Language
Traditional trust drafting often uses HEMS standards — but in a Special Needs Trust, that phrase can backfire.
Why? Because “support” is interpreted as basic needs (like food or shelter), which can reduce or eliminate SSI benefits.
✅ Instead, use discretionary language that allows the trustee to supplement, not replace, public benefits — covering items like therapy, transportation, vacations, personal care aides, or adaptive technology.
4️⃣ Choose the Right Trustee
Administering a Special Needs Trust requires specialized knowledge.
When selecting a trustee, consider:
Experience with benefits programs and reporting requirements
Ability to manage investments and taxes
Willingness to coordinate care with family members
Understanding of Medicaid and SSI rules
You can also appoint co-trustees — for example, a professional trustee to handle administration and a family member for personal oversight.
5️⃣ Plan for the Future — and the Successor Trustee
Because these trusts can last for the lifetime of the beneficiary, always name a successor trustee (or two).
Include clear language on how future trustees are appointed, replaced, or removed. This ensures continuity if the original trustee becomes unable or unwilling to serve.
6️⃣ Coordinate with Your Overall Estate Plan
A Special Needs Trust should be integrated into your full estate plan — not drafted in isolation.
That means reviewing:
Wills — ensuring assets pass into the trust, not directly to the beneficiary.
Beneficiary designations — updating life insurance, retirement accounts, or investment policies.
Powers of attorney — aligning your agents and trustees to avoid conflicts.
Failing to coordinate these can accidentally disqualify your loved one from benefits.
7️⃣ Include a “Letter of Intent”
Although not a legal document, a Letter of Intent is a valuable companion to your trust.
It can include:
Your loved one’s daily routines
Medical history and preferences
Educational and employment background
Family dynamics and trusted contacts
This gives future trustees insight into the beneficiary’s life, ensuring continuity of care and compassion.
8️⃣ Avoid Overfunding (or Underfunding)
Determining how much to fund the trust depends on your loved one’s age, life expectancy, and potential care needs.
Work with an estate planner and financial advisor to calculate:
Long-term care costs
Housing and transportation expenses
Medical and therapy needs
Inflation and life expectancy
A balanced funding plan ensures stability without waste.
9️⃣ Keep It Updated
Laws governing Medicaid and SSI eligibility are subject to change. So can family circumstances.
Schedule a review every 3–5 years (or sooner after major life changes) to ensure the trust remains aligned with current needs and regulations.
Final Thoughts
A Third-Party Special Needs Trust isn’t just a legal tool — it’s a lifeline that preserves independence, security, and dignity for your loved one.
By working with an experienced estate planning or elder law attorney, you can ensure that your trust protects what truly matters: your family’s future peace of mind.