Special Needs Trusts in Missouri: Protecting a Loved One Without Losing Benefits

Special Needs Trusts in Missouri: Protecting a Loved One Without Losing Benefits

If you have a child, sibling, or other loved one with a disability, you know that their care is one of your deepest concerns. You want to provide for them financially — but here's the catch: leaving money directly to someone who receives government benefits like Medicaid or Supplemental Security Income (SSI) can actually disqualify them from those programs.

That's where a special needs trust (also called a supplemental needs trust) comes in. At The Taormina Firm, we help families throughout the St. Louis area — from Ballwin and Webster Groves to O'Fallon and Florissant — set up special needs trusts that protect their loved ones' benefits while providing for a better quality of life.

Why Direct Gifts Can Be Dangerous

Medicaid and SSI are "means-tested" programs, meaning eligibility depends on having limited assets and income. For SSI, the asset limit is just $2,000 for an individual. If you leave your loved one an inheritance of $50,000 through your will, they'll lose their benefits until they spend down that money to the asset limit — and then they'll have neither the inheritance nor the benefits.

This happens more often than you'd think, and it's heartbreaking. A well-intentioned gift can do real harm. A special needs trust prevents this problem entirely.

How a Special Needs Trust Works

A special needs trust holds assets for the benefit of a person with a disability without those assets being counted as the beneficiary's own resources for purposes of government benefit eligibility. The trustee manages the trust and makes distributions for the beneficiary's needs — but the distributions are supplemental to, not a replacement for, government benefits.

The trust can pay for things that Medicaid and SSI don't cover, such as personal care items, electronics and entertainment, vacations and experiences, education and training, a vehicle or vehicle modifications, home furnishings and improvements, and companion care or recreational programs.

The key rule is that the trust generally should not pay for food or shelter directly, as those payments can reduce the beneficiary's SSI benefits. This is a nuance that makes working with an experienced attorney essential.

Types of Special Needs Trusts in Missouri

There are two main types of special needs trusts, and the right choice depends on whose money is funding the trust.

A third-party special needs trust is funded with someone else's money — typically a parent's or grandparent's assets. You create this trust as part of your estate plan, and it's funded either during your lifetime or at your death through your will or revocable living trust. The big advantage: when the beneficiary passes away, the remaining trust assets can go to other family members or heirs. There's no requirement to pay back Medicaid.

A first-party (or self-settled) special needs trust is funded with the disabled person's own money — for example, from a personal injury settlement or an inheritance they received before a trust was in place. Under federal law (42 U.S.C. § 1396p(d)(4)(A)), a first-party SNT must include a Medicaid payback provision, meaning that when the beneficiary dies, any remaining trust assets must first be used to reimburse Medicaid for benefits paid during the beneficiary's lifetime.

The ABLE Account Alternative

Missouri residents may also benefit from ABLE accounts — tax-advantaged savings accounts authorized under the federal Achieving a Better Life Experience Act. ABLE accounts allow individuals with disabilities to save up to a certain amount without affecting their eligibility for means-tested benefits. While ABLE accounts have contribution and balance limits, they can be a useful complement to a special needs trust.

Choosing the Right Trustee

Selecting a trustee for a special needs trust requires special care. The trustee needs to understand government benefit rules, manage investments prudently, and make distribution decisions that enhance the beneficiary's quality of life without jeopardizing their benefits. As we discussed in our post on choosing a trustee, this is a role that requires both competence and compassion.

For families in Chesterfield, Crestwood, Sunset Hills, and beyond, we often recommend professional trustees or co-trustee arrangements for special needs trusts because of the complexity involved.

Including a Special Needs Trust in Your Estate Plan

If you have a loved one with a disability, every element of your estate plan should be reviewed through that lens. Your will, your trust, your beneficiary designations, and even your life insurance should all be coordinated to ensure that no assets pass directly to the person with special needs. Everything should flow through the special needs trust.

It's also important to communicate your plan to other family members. A well-meaning grandparent who leaves $10,000 directly to your child in their own will could inadvertently cause a benefits crisis. Education and coordination across the family are key.

Protect the People Who Need It Most

A special needs trust is one of the most loving and practical things you can do for a family member with a disability. If you're in the St. Louis area, contact The Taormina Firm to discuss how a special needs trust can fit into your family's estate plan. We'll make sure your loved one is provided for — without losing the benefits they depend on.