Creating a trust for a loved one with an intellectual or developmental disability (IDD) is one of the most loving steps a family can take—but it’s also one of the most complex. Even small errors in wording or structure can unintentionally affect eligibility for benefits or lead to complications later on. Knowing the most common mistakes can help you protect your loved one’s financial future with confidence.
Why Trusts Matter
A Special Needs Trust (SNT) helps ensure your loved one’s quality of life while preserving eligibility for critical public benefits like Medicaid and Supplemental Security Income (SSI).
But these trusts must be carefully designed and managed. A small mistake—like naming the wrong beneficiary or allowing direct cash access—can cause benefits to stop or require lengthy corrections through the court.
Common Mistake #1: Naming the Trust in the Individual’s Name
A Special Needs Trust should never be titled in your loved one’s name (for example, “John Smith’s Trust”). Doing so can make it appear that your loved one directly owns the assets, which may disqualify them from SSI or Medicaid.
✅ Instead: Work with your attorney to title it properly, such as “The John Smith Special Needs Trust, established by [Parent/Guardian Name].”
Common Mistake #2: Using the Wrong Type of Trust
There are different kinds of Special Needs Trusts, and using the wrong one can have costly consequences.
- First-Party Trust: Uses the individual’s own money (for example, an inheritance or legal settlement). Must include a Medicaid payback provision.
- Third-Party Trust: Funded by parents, relatives, or friends. Does not include a payback clause and can pass remaining funds to other beneficiaries.
✅ Instead: Confirm which type fits your situation before funding the trust.
Common Mistake #3: Giving Direct Access to Funds
If your loved one can directly withdraw or spend from the trust, Medicaid and SSI may count those funds as personal income or assets.
✅ Instead: The trustee should manage purchases on their behalf—for example, paying vendors directly for therapy, transportation, housing, or recreation.
Common Mistake #4: Choosing the Wrong Trustee
Serving as trustee is a major responsibility. The trustee must understand government benefit rules, reporting requirements, and how to balance independence with oversight.
✅ Instead: Choose someone trustworthy, organized, and ideally familiar with special needs financial planning. Consider co-trustees or a pooled trust administered by a nonprofit if managing alone feels overwhelming.
Common Mistake #5: Failing to Coordinate with Other Plans
A trust works best when coordinated with your will, guardianship documents, ABLE account, and beneficiary designations (like life insurance policies).
✅ Instead: Review all documents together with your attorney to ensure they align and do not conflict.
Common Mistake #6: Forgetting to Fund the Trust
Some families create the trust on paper but never transfer assets into it—leaving it effectively empty.
✅ Instead: “Fund” your trust by directing savings, life insurance, or gifts into it. Ask your attorney how to list the trust correctly as a beneficiary.
Common Mistake #7: Not Reviewing or Updating the Trust
Laws, benefits, and family circumstances can change. A trust that worked when your child was 10 may not be ideal when they’re 30.
✅ Instead: Review your trust every few years, or anytime there’s a major change in your family, benefits, or assets.
To explore more information, local contacts, and supports for individuals with disabilities, visit sacrd.org/IDD. This page does not constitute legal advice. Consult legal representation of your own before making any decisions.
