A special needs trust answers a problem that comes up in almost every estate planning conversation involving a family member with a disability: how do you leave someone money without taking away the benefits they depend on?
The answer is structure. Rather than leaving assets directly to the person with a disability, you leave them to a trust. The trust holds and manages those assets, and a trustee distributes them for the beneficiary's benefit according to the trust's terms. Because the beneficiary does not own the trust assets, those assets generally do not count as resources for purposes of SSI or Medicaid eligibility.
What a special needs trust can pay for
A special needs trust is designed to cover expenses that government programs do not, without replacing the programs themselves. Common permitted expenses include education, technology, transportation, recreation, personal care items beyond what Medicaid covers, and medical or dental costs not paid by public benefits.
The trust generally should not pay for food or shelter directly, as those payments can count as in-kind support and maintenance and reduce SSI benefits. Trustee education on benefit program rules is an important part of making a special needs trust work correctly over time.
Types of special needs trusts in New Mexico
The most common type for estate planning purposes is a third-party special needs trust, funded with assets from parents, grandparents, or other family members. A first-party trust is used when the beneficiary receives assets in their own name, such as through a personal injury settlement. A pooled trust, administered by a nonprofit, is available for beneficiaries who need professional management but whose assets may not justify an individual trust.
Why it matters to get this right
A poorly drafted special needs trust can fail to protect benefit eligibility. A direct inheritance or a trust that doesn't meet program requirements can trigger a spend-down requirement that depletes the assets entirely before the beneficiary regains eligibility. Working with an estate planning attorney who has experience in this area is essential.
