On Being the Beneficiary of a Special Needs Trust

There’s a fair amount of information available to guide the trustee of a special needs trust. That includes the popular Trustee Handbook from the Special Needs Alliance. There’s far less help for being the beneficiary of a special needs trust. Beneficiaries might legitimately have a lot of questions. Let’s see if we can help with a few of them.

Do I have to ask the trustee for everything?

The trustee of a special needs trust might be a relative or close associate. That creates an automatic tension for the beneficiary, who might not enjoy having to ask a relative for assistance.

On the other hand, the trustee might be a corporate or institutional trustee. That can also be intimidating for the beneficiary of a special needs trust.

In either case, though, the beneficiary will need to make requests to the trustee. The trust is a separate entity, but it is completely under the control of the trustee. If you are concerned about having to ask for help, you might be able to arrange for automatic payment of some expenses. But working closely with the trustee is the best path forward. If that is difficult, you might want to look into changing trustees. You might not have authority to change trustees, but a frank conversation with the current trustee might ease a transition.

It’s important for the beneficiary to recognize, though, that the trustee has additional, and different, considerations to apply to requests. The trustee has to consider trust size and durability, the interests of remainder beneficiaries, and their perception of the beneficiary’s best interests. The best advice we can give the beneficiary of a special needs trust: assume that the trustee wants to work with you and figure out how to help, and help them do that.

What can I get from my special needs trust?

Much of the literature about special needs trusts focuses on their limitations. Not enough is written about the good things the trust can provide.

For the beneficiary of a special needs trust, there are lots of benefits available. Yes, there are some limitations — but even many of those can be worked around. The language of a specific trust might change the rules, but public benefits rules would permit any of these uses for most special needs trusts:

• Home internet connection
• Cell phone (or landline phone, or both)
• Travel and transportation (including, in an appropriate case, a vehicle and costs of operation)
• Clothing
• Education (including tuition, books, and assistance to help you complete your education)
• Household furnishings, including appliances
• Entertainment (though it’s often hard to prepay in a way that works)
• Medical equipment and needs
• Taxes

In addition, it is sometimes possible to arrange for payment of rent and basic utilities — though those expenses are often the hardest to provide for the beneficiary of a special needs trust.

Can’t I just get cash from the special needs trust?

Usually, no. But that doesn’t mean you can’t get the benefits.

The trustee should work with you to figure out how to pay for things directly. Want to go on a trip? The trustee should be able to pay directly for airline tickets, hotel and related costs. They should be able to figure out how to pay for meals while on your trip (they are usually permissible even though the trust is not supposed to pay for food and shelter).

Want to finish up your college education? The trustee can be your ally — paying directly for tuition, books and tutoring costs. Try to make them your ally by involving them.

Same for the other things on the above list. Your trustee can pay for new appliances or furniture, and arrange to have it delivered (and installed). What really helps: involve your trustee from an early point in arranging for direct payments.

Does this all mean my trustee has to go shopping with me?

It may seem impossible to arrange for direct payment for everyday things like clothes, personal needs, cleaning supplies and the mundane things the beneficiary of a special needs trust might need. But there is a mechanism for even those kinds of purchases.

It’s called the True Link card. It’s like a prepaid credit card, but with a difference that makes it useable for the beneficiary of a special needs trust. Talk to your trustee about whether they can set up such a card for you.

How is it different? Unlike other prepaid cards, it permits the trustee to set things that it can’t be used for. That means they can preclude use for food and shelter items, while permitting other uses. By loading a preset amount on the card periodically, the trustee can permit you to make individual purchases without compromising eligibility for public benefits. While it may seem like a big-brother approach to spending, it can actually give the beneficiary of a special needs trust considerable freedom and autonomy.

Are there other ways to give me more freedom?

Yes, in at least some cases. If your disability began before you turned 26, you might be eligible to set up an ABLE Act account. That can be a real game-changer for some people.

There are some limitations to ABLE Act accounts. First, the maximum annual contribution (at least for 2023) is $17,000 — and that might not be enough to pay, say, housing costs for the year. And then there’s the age-26 onset limitation (though that’s scheduled to increase to age 46 in three years). Finally, there is the hassle many beneficiaries of special needs trusts have reported over getting regular access to the ABLE Act funds — though that might ease as the plans get more efficient and better-organized.

Assuming you qualify, you could set up your ABLE Act account and ask the trustee to put up to the $17,000 limit into the account. They might reasonably suggest that they deposit a smaller amount, and then refresh the account several times over the year. But then there are few limits on what you use that money for.

Is it always just about public benefits?

No. Sometimes your trustee may also be reporting to a court. In that case, there’s always the chance that your great idea for a significant expenditure might run afoul of the judge’s view of the trustee’s duty. But you can increase the likelihood of approval by explaining your request(s) clearly and articulately.

The trustee is also beholden to the remainder beneficiaries, though that doesn’t mean that they have a veto power over expenditures. In many (perhaps most) circumstances, those beneficiaries are entitled to an annual report of trust expenditures, and it would be inappropriate to completely ignore them.

Can I just terminate the special needs trust?

Probably not. And even if you could, that might mean paying back the state for any Medicaid expenditures you’ve received. That could even exhaust the special needs trust, which wouldn’t improve your circumstances at all.

But is it worth it?

Absolutely. The difficulties inherent in being the beneficiary of a special needs trust are not to be dismissed. But the benefits can be considerable.

Yes, it can be a challenge to work with your trustee. But rather than think of them as restraining your liberty, think of them as your ally in maximizing benefits. And there are some things you can do to make the relationship work better, including:

• Keep and give them receipts when they ask. They aren’t being nosy jerks — they need to show that the things you bought were in fact not food or shelter — or convertible into food or shelter.
• Let them know what you’re planning. If you ask for money to take a trip next Monday, they may have a hard time liquidating investments, transferring funds, and depositing proceeds into your True Link account. Better if they know what you’re thinking at least a couple weeks ahead.
• Engage them in conversations about plans, investment strategies and likely future expenses. They are more likely to be supportive if you are thorough.
• Don’t hesitate to suggest that the relationship might not be great if, in fact, it isn’t. They might be willing to make changes that make it easier for you to work with them, or even to change trustees.