A special needs trust is an important estate planning tool for anyone who wants to help care for a disabled loved one. Rather than transferring ownership of assets directly to the disabled person, this type of trust holds funds for his or her benefit.

Provided your disabled loved one uses funds from the special needs trust correctly, he or she probably remains eligible for needs-based public assistance, like Supplemental Security Income or Medicaid. Consequently, it is important to understand exactly what expenses a special needs trust can legally cover.

Unacceptable expenses

Public assistance usually pays for basic living expenses and medical care. Accordingly, your loved one may use funds from these programs to pay for rent, utilities, food, certain medical expenses and other fundamental needs.

The special needs trust cannot cover these same expenses. If your loved one uses funds from the special needs trust on essential expenses, he or she may inadvertently become ineligible for government help.

Acceptable expenses

While public funds pay for necessary living expenses, disbursements from the special needs trust may cover essentially everything else. That is, funds from the trust may pay for supplemental expenses, likely including the following:

  • Out-of-pocket medical care, copays and uncovered medical and dental expenses
  • Home modifications, prosthetics, wheelchairs and other accommodations
  • Educational, vocational and training expenses
  • Travel, recreation, athletic and entertainment costs
  • Legal fees

While there are some restrictions on what a special needs trust may cover, the list of acceptable expenses lets you know your estate plan is helping to improve your loved one’s quality of life.