Families who want to protect a loved one with disabilities often consider setting up a Special Needs Trust (SNT). However, many people are surprised to learn that lawyers typically charge more for an SNT than for a standard revocable living trust.
This article explains why the costs differ and what makes a Special Needs Trust unique under Illinois and federal law.
What Is a Special Needs Trust?
A Special Needs Trust is designed to provide financial support for a person with disabilities without disrupting their eligibility for important government benefits such as:
- Supplemental Security Income (SSI)
- Medicaid
- Home and community-based waivers
- Other means-tested programs
To accomplish this, the trust must follow strict rules on how assets are held, managed, and distributed.
Why Special Needs Trusts Cost More to Draft
1. They Require Much More Legal Complexity
Revocable living trusts are relatively uniform documents. Most law firms have a well-refined drafting process.
Special Needs Trusts must comply with:
- Federal statutes (42 U.S.C. § 1396p)
- Social Security Administration rules
- Illinois Medicaid regulations
- POMS (Program Operations Manual System)
These rules determine what the trustee can and cannot do. If the trust violates them—even unintentionally—the beneficiary may lose benefits.
This complexity demands extensive customization and legal precision.
2. Coordination With Benefits and Family Planning
An attorney must analyze:
- The beneficiary’s current benefits
- Anticipated future needs
- The family’s financial situation
- How to fund the trust (life insurance, inheritances, settlements, etc.)
This coordination takes more time than preparing a standard revocable trust.
3. Trustee Instructions Must Be Extremely Detailed
A trustee for a Special Needs Trust must understand:
- How distributions affect SSI
- How “in-kind support and maintenance” (ISM) reduces benefits
- When a distribution makes an asset “countable.”
- How to avoid jeopardizing Medicaid eligibility
To protect the beneficiary, SNTs include pages of specialized instructions, which increases drafting time.
4. Higher Attorney Liability
If a revocable trust has an error, it typically causes inconvenience—not loss of healthcare.
If a Special Needs Trust is drafted incorrectly, the beneficiary could lose:
- Lifesaving medical coverage
- Cash benefits
- Housing assistance
Because the stakes are high, attorneys carry greater professional risk, which is reflected in the cost.
5. Funding a Special Needs Trust Can Be Complicated
Funding may involve:
- Coordinating life insurance and retirement account beneficiary designations to ensure assets pass directly to the SNT;
- Transferring assets from a parent’s estate plan;
- Handling personal injury settlements (for first-party SNTs); and
- Ensuring all assets are titled or designated in a manner that preserves the beneficiary’s eligibility for government benefits
This is work that simply does not exist with standard trusts.
What Makes a Special Needs Trust Unique?
Special Needs Trusts contain features not found in ordinary trusts, including:
1. Prohibitions on Mandatory Distributions
All distributions must be at the trustee’s sole discretion to avoid being treated as income.
2. Medicaid Payback Requirement (for First-Party SNTs)
If the trust is funded with the beneficiary’s own assets, federal law requires that, upon the beneficiary’s death, any remaining trust assets must first be used to reimburse the State of Illinois for Medicaid benefits paid on behalf of the beneficiary after the trust was established, and only up to the amount remaining in the trust.
3. Restrictions on Food & Shelter Expenditures
Distributions for food and shelter may reduce the beneficiary’s SSI benefit due to Social Security’s in-kind support and maintenance (ISM) rules, but do not automatically disqualify the beneficiary from receiving SSI.
4. Spendthrift and Anti-Attachment Clauses
These protect trust assets from creditors and from being treated as a resource.
5. Government Oversight
Medicaid agencies often require copies of the trust and may review distributions for compliance.
Conclusion: The Higher Cost Reflects Higher Protection
Special Needs Trusts cost more because:
- They are legally complex
- They require customized drafting
- They protect essential government benefits
- They involve higher attorney responsibility
- They require more strategic financial planning
For families in Illinois, the additional cost is typically well worth the security and long-term protection an SNT provides.
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FAQ: Special Needs Trusts in Illinois
What is a Special Needs Trust, and why is it necessary?
A Special Needs Trust (SNT) is a legal tool that allows a disabled individual to receive financial support without losing eligibility for essential government benefits such as SSI or Medicaid. If a person with disabilities receives money outright through an inheritance or settlement, those funds typically count as assets and may disqualify them from benefits. An SNT prevents this by holding funds in a way that does not count as the beneficiary’s resources.
Do Special Needs Trusts cost more to set up than regular trusts?
Yes. SNTs almost always cost more because they require specialized drafting, must comply with strict federal and state rules, and carry higher liability if done incorrectly. A standard revocable living trust avoids probate, but an SNT must protect the beneficiary’s access to healthcare and income benefits—making the legal work more complex and time-intensive.
What government benefits can an SNT help preserve?
A properly drafted Special Needs Trust can preserve eligibility for benefits such as:
- Supplemental Security Income (SSI)
- Medicaid (including waiver programs)
- Housing assistance programs
- SNAP (formerly food stamps)
- State-funded disability services
These programs have strict income and asset limits, so the trust must be drafted carefully to avoid jeopardizing eligibility.
What is the difference between a first-party and third-party Special Needs Trust?
First-party SNT:
Funded with the beneficiary’s own money (e.g., injury settlement, inheritance received without planning).
Requires a Medicaid payback provision at the beneficiary’s death.
Third-party SNT:
Funded with someone else’s money (usually parents or grandparents).
No Medicaid payback required. Remaining assets can go to other heirs.
Does a Special Needs Trust replace a revocable living trust?
No. Most families need both:
- The revocable trust manages the parents’ estate and avoids probate.
- The Special Needs Trust manages the disabled individual’s inheritance or lifetime financial support.
Both documents work together as part of a complete estate plan.
What can a Special Needs Trust pay for?
An SNT can pay for supplemental items that improve quality of life, such as:
- Medical and dental expenses not covered by insurance
- Therapies, caregivers, and home modifications
- Education and vocational training
- Transportation and vehicle expenses
- Entertainment, vacations, electronics, and personal items
- Internet, phone, and cable
- Special dietary needs
- Companion services
The trust must avoid giving the beneficiary cash or paying for food or shelter in ways that violate SSA rules unless the family understands the benefit reduction implications.
Who should serve as trustee of a Special Needs Trust?
Choosing a trustee is critical. Options include:
- A parent or family member (if comfortable with SSA rules)
- A professional trustee (bank or trust company)
- A pooled trust run by a nonprofit
The trustee must understand complex distribution rules. Mistakes can cause loss of benefits, so many families choose a professional or corporate trustee, or appoint a family member to serve alongside a professional as co-trustees to combine personal knowledge with professional expertise.
Can the beneficiary control the trust or make distributions?
No. For the trust to remain exempt from SSI/Medicaid resource limits, the beneficiary cannot:
- Control distributions
- Demand funds
- Serve as trustee
- Use trust money as if it were their own
All distributions must be at the sole discretion of the trustee.
What happens to the money in the trust when the beneficiary dies?
- First-party SNT: Medicaid must be reimbursed from remaining assets. Anything left after that can go to family.
- Third-party SNT: Assets can go to other beneficiaries without any Medicaid payback requirement.
Can a Special Needs Trust be used together with ABLE accounts?
Yes. ABLE accounts and SNTs complement each other. An ABLE account allows up to $17,000 per year (as of 2023; this amount is subject to change) to be contributed for qualified disability expenses, while an SNT can hold larger sums and be used for a broader range of supplemental needs, though with stricter distribution rules.
When should a family consider creating a Special Needs Trust?
You should strongly consider an SNT if:
- Your child or adult loved one receives or may receive SSI or Medicaid
- They cannot manage finances independently
- You plan to leave them an inheritance
- They will receive a lawsuit settlement or government benefit backpay
- Family members want to gift money to them
- You want to ensure their long-term financial stability
Starting early ensures better protection and coordination of benefits.
Revised: December 10, 2025
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