Protect the person you love
Support that works alongside their benefitsPlanned carefully, so help arrives the way you intend.
Leaving money directly to a person who relies on Medicaid, SSI, or other needs-based programs can unintentionally disqualify them. A properly drafted special needs trust can hold assets for their benefit while helping preserve eligibility, so the gift improves their life instead of complicating it.
These trusts involve program rules that change and that are applied closely, so we draft with precision, coordinate the trust with the rest of your estate plan, and help you choose a trustee who can manage distributions responsibly. Families who also want to plan for guardianship and long-term care decisions can build those pieces into the same plan. Related: wills and trusts and irrevocable trusts.
Why Families Use Special Needs Trusts
A Well-Meaning Inheritance Can Backfire
Even a modest amount of money left directly to a person receiving needs-based benefits may affect their eligibility for programs like Medicaid or SSI. A special needs trust helps avoid that risk.
Leave Money to a Loved One
Provide for a family member with a disability without disqualifying them from benefits.
Protect Settlements & Inheritances
Safeguard lawsuit settlements or inherited funds received in the beneficiary’s name.
Avoid Accidental Disqualification
Prevent assets from unintentionally affecting Medicaid or SSI eligibility.
Appoint a Trustworthy Manager
Choose someone responsible to oversee and distribute funds appropriately.
Create Long-Term Care Instructions
Provide stability and guidance for care after parents or caregivers pass away.
What Is a Special Needs Trust?
Support Without Losing Benefits
A special needs trust is a legal trust designed to hold money or property for a person with a disability. Instead of giving assets directly to the beneficiary, a trustee uses those assets for the beneficiary’s supplemental needs—providing extra support without replacing or jeopardizing essential public benefits.
- Medical, dental, and vision expenses not covered by insurance
- Therapy, rehabilitation, and specialized care
- Education, job training, and transportation
- Technology, communication devices, and personal care items
What Can a Special Needs Trust Pay For?
Supplemental Needs, Not Basic Support
A special needs trust is usually designed to pay for supplemental needs, not basic support already covered by public benefits. The trustee must understand the rules, since certain payments may reduce benefits if handled incorrectly.
- Medical care, dental work, and therapy
- Education and transportation
- Clothing, personal items, and assistive technology
- Travel, recreation, and home furnishings
- Care management and companionship activities
Types of Special Needs Trusts
Choosing the Right Structure
The right trust structure depends on where the assets come from, the beneficiary’s age, and the benefits involved. We help you determine which type fits your family’s situation.
- Match the trust to the source of funds
- Account for Medicaid payback requirements
- Plan for children as well as adults
- Coordinate with Colorado’s Medicaid rules
Third-Party Special Needs Trust
Funded with assets belonging to someone other than the beneficiary—often used when parents want to leave an inheritance for a child with disabilities.
First-Party Special Needs Trust
Funded with the beneficiary’s own assets, such as a personal injury settlement or inheritance. More heavily regulated and may include Medicaid payback requirements.
Pooled Special Needs Trust
Managed by a nonprofit organization—an option when a private trustee isn’t practical or the amount involved doesn’t justify a standalone trust.
Special Needs Trusts for Children
Lets parents name who will manage money for a child and how funds and support should be provided in the future.
Special Needs Trusts for Adults
Often needed after an adult receives an inheritance, settlement, or back payment—structure depends on the source of funds and benefits involved.
Medicaid Coordination
Colorado’s Health First Colorado program has specific trust review and submission procedures that must be followed carefully.
Who Should Be the Trustee?
One of the Most Important Decisions
Choosing the trustee is one of the most important decisions in special needs planning. Some families choose a trusted relative; others use a professional trustee, nonprofit pooled trust, or corporate fiduciary.
- Responsible with money and organized
- Willing to follow benefit rules and keep records
- Comfortable saying no when needed
- Focused on the beneficiary’s long-term well-being
Common Mistakes to Avoid
Small Errors Can Cost Benefits
Families should be careful when planning for a loved one with a disability—mistakes can jeopardize the benefits they depend on.
- Leaving assets directly to a beneficiary on needs-based benefits
- Using a generic trust form or naming the wrong trustee
- Mixing up first-party and third-party trust rules
- Ignoring Medicaid review requirements or waiting until a crisis
Special Needs Trusts and Medicaid in Colorado
Technical Rules Require Careful Drafting
Colorado’s Department of Health Care Policy & Financing (HCPF) reviews certain trusts and provides instructions for submitting trust documents for review. HCPF guidance has also addressed trustee notice requirements for distributions exceeding $5,000.
- Trust review and submission procedures apply
- Notice requirements for larger distributions
- Mistakes can affect benefit eligibility
- Generic online forms often don’t comply with Colorado rules
FAQ
Common questionsStraight answers about your situation.
What is the purpose of a special needs trust?
A special needs trust allows assets to be used for a person with disabilities without giving the assets directly to that person. This can help preserve eligibility for needs-based public benefits.
Can a special needs trust pay for housing?
Sometimes, but housing payments can affect certain benefits depending on how they are handled. The trustee should get guidance before making housing-related distributions.
Can grandparents leave money to a special needs trust?
Yes. Grandparents can often leave assets to a properly drafted third-party special needs trust instead of leaving money directly to the beneficiary.
Is a special needs trust only for children?
No. Special needs trusts can be used for both children and adults with disabilities.
Does every person with a disability need a special needs trust?
Not always. The right plan depends on the person’s benefits, assets, family situation, and long-term needs.
Don’t see your question? Call (720) 334-7305 for a free consultation.
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This page provides general information about Colorado law, not legal advice for your situation. Every case is different, and past experience does not guarantee a particular outcome.