Special Needs Trusts
A well-drafted special needs trust lets a Wisconsin family provide meaningful support to a loved one with a disability — supplementing SSI, Medicaid, and other means-tested benefits rather than wiping them out.
The problem a special needs trust solves
Supplemental Security Income (SSI) and Medicaid are means-tested. A person cannot generally qualify if they own more than $2,000 in "countable resources." An inheritance, a life insurance payout, or even a well-meaning gift from a grandparent can push a beneficiary over that threshold and cost them the benefits they depend on — sometimes retroactively, with demands for repayment.
A special needs trust solves that problem by holding the inheritance or gift in trust for the beneficiary's benefit without making the funds their "property" for eligibility purposes. The trustee can use the funds for things the benefits do not cover — dental care, therapies, assistive technology, recreation, travel, a companion — while the beneficiary's core support (housing, medical, food assistance) stays in place.
Third-party vs first-party trusts
A third-party special needs trust holds money that never belonged to the beneficiary — typically a parent's or grandparent's gift or bequest. At the beneficiary's death, anything remaining can pass to other family members. This is the most common kind and the one Wisconsin parents typically build into their estate plan.
A first-party (or "self-settled") special needs trust holds money that was the beneficiary's own — a personal injury settlement, a direct inheritance that arrived before planning was in place, or retroactive Social Security. It must include a Medicaid payback provision under 42 U.S.C. § 1396p(d)(4)(A), so Medicaid is reimbursed from the remainder at the beneficiary's death. Rebecca drafts both when the family situation calls for them.
How the trust fits into the broader plan
For most Wisconsin families with a child or adult relative with a disability, the special needs trust sits inside the revocable living trust, not as a stand-alone document. When the parents pass, the portion of the estate earmarked for that beneficiary flows into a sub-trust that follows special-needs rules. Siblings and other beneficiaries receive their shares outright.
The choice of trustee matters enormously. The trustee must understand SSI and Medicaid rules well enough to avoid distributions that would be counted as income or resources to the beneficiary. Rebecca talks through whether a family member, a professional trustee, a corporate trustee, or a pooled trust administered by a Wisconsin-based special-needs organization is the right fit.
ABLE accounts — the companion tool
Wisconsin residents can open an ABLE account (Achieving a Better Life Experience) for a beneficiary whose disability began before age 26. ABLE accounts hold up to a federal annual cap without affecting SSI or Medicaid eligibility (subject to limits), and the beneficiary themselves can have direct access to the account for qualified disability expenses. A special needs trust and an ABLE account are complementary, not competing — Rebecca often recommends both.
Frequently asked
Common questions about special needs trust
- When should we set up a special needs trust?
- As soon as a diagnosis is in hand and the family knows long-term support will be needed. Waiting risks a scenario where an inheritance arrives — from a grandparent who did not know about the disability — before planning is in place, and the family has to scramble to protect benefits. Building the trust into the parents' estate plan removes that risk entirely.
- Can other family members contribute?
- Yes. Grandparents, aunts, uncles, and friends can name the third-party special needs trust as the beneficiary of a gift, bequest, or life insurance policy. Rebecca prepares a short letter to family members after the trust is signed, so relatives know how to make sure their planning supports — rather than inadvertently disqualifies — the beneficiary.
- What can the trustee spend money on?
- Supplemental items and services — things that improve quality of life without duplicating what SSI or Medicaid already provides. Common distributions: therapies not covered by Medicaid, private schooling, recreation, travel, a companion, a vehicle adaptation, technology, dental work. What the trustee generally cannot do: give cash directly to the beneficiary (it is counted as income), or pay for food and shelter without triggering an SSI reduction.
- What happens to the trust when the beneficiary passes?
- For third-party trusts, the remainder passes to whoever the parents named in the trust — typically siblings, nieces, nephews, or a charity. For first-party trusts, Medicaid must be reimbursed from the remainder before any other distribution. That distinction is why Rebecca works hard to keep family contributions in third-party trusts whenever possible.
- Can the beneficiary serve as their own trustee?
- No. The whole structure depends on the beneficiary not having legal control over the funds. The trustee must be someone else — a parent during the parents' lifetimes, then a successor trustee after. Rebecca thinks carefully with families about the right successor; it is one of the most important decisions in a special needs plan.
Talk with Rebecca
Tell Rebecca a little about your situation. She will be in touch — usually within one business day.