Estate planning documents sometimes need to account for a beneficiary who receives, or may one day need, means-tested public benefits such as Supplemental Security Income (SSI) or Medicaid.
Agile EP addresses this in two ways:
- A drafted Special Needs Trust: A complete third-party trust for a named beneficiary, created in the Will, Revocable Trust or Joint Revocable Trust, which receives that beneficiary’s share of the residue in place of the beneficiary.
- The special needs boilerplate clause: An optional safety valve that lets the Personal Representative or Trustee create a special needs trust or adapt an existing trust for a beneficiary whose eligibility for benefits becomes an issue after the plan is signed, after the client’s death (or both clients’ deaths) but before anything is distributed to that beneficiary.
This article describes what each one produces. For the interview steps that add a Special Needs Trust to a plan, see this article.
The Drafted Special Needs Trust
The Special Needs Trust is a discretionary trust that holds only the client’s property, never the beneficiary’s own assets. It is meant to supplement, not replace, the benefits the beneficiary receives or may receive.
It is available in Washington and Oregon, in Will, Revocable Trust and Joint Revocable Trust plans, for a beneficiary other than the client’s spouse or partner.
A plan can have one Special Needs Trust, for one beneficiary, whether it gives the entire residue or divides the residue into percentage shares. In a percentage-share plan, the share held in the Special Needs Trust can have only one beneficiary.
The attorney chooses whether the documents call it a Special Needs Trust or a Supplemental Needs Trust. There is no legal difference between the two terms. The help center and the interview always say Special Needs Trust.
Provisions Included in Every Special Needs Trust
These provisions appear in every Special Needs Trust, whatever is chosen in the interview.
- Supplemental purpose: The trust supplements public benefits rather than replacing them.
- It names the public benefits it is meant to preserve and refers to the state’s rules for third-party trusts.
- Distributions are in the Trustee’s discretion.
- Distributions that reduce benefits: The Trustee may make a distribution that reduces or ends the beneficiary’s benefits when the Trustee decides it is in the beneficiary’s best interest, after weighing the size of the trust, the beneficiary’s future needs, and what the trust can provide that benefits cannot.
- Spendthrift provision: The restraint on alienation is labeled a spendthrift provision and states that it is intended as one within the meaning of POMS SI 01120.200.
- No disclaimer or release on the beneficiary’s behalf: The beneficiary’s share cannot be given up by someone acting for them.
- No agent, guardian or conservator may disclaim or release it.
- The beneficiary keeps the right to disclaim personally.
- No custodial transfers: The Trustee may not distribute to a Uniform Transfers to Minors Act (UTMA) custodian or a custodial trustee for the beneficiary.
- At the beneficiary’s death: What remains in the trust passes in this order.
- To the beneficiary’s descendants, by representation, with each share handled the way the residue clause handles a share for that person.
- If the beneficiary has no descendants, under the residue clause as though the client had just died.
- If the beneficiary is not the client’s descendant, a descendant’s share passes outright, subject to the provision for beneficiaries who are young or incapacitated.
Two options add to these provisions. One names Supplemental Security Income among the protected benefits and adds an in-kind support and maintenance example to the Trustee’s power to make distributions that affect eligibility. The other authorizes distributions to an ABLE account for the beneficiary.
The documents use each state’s own references:
| Washington | Washington Apple Health; the Washington State ABLE Savings Plan; chapter 182-516 WAC, which includes the rule for third-party trusts (WAC 182-516-0140). |
| Oregon | The Oregon Health Plan; the Oregon ABLE Savings Plan; OAR 461-140-0020, under which resources held in an irrevocable trust that cannot be used for basic needs are not available; ORS chapter 130 (the Oregon Uniform Trust Code). |
How the Special Needs Trust Changes Other Provisions
Including a Special Needs Trust also changes these provisions of the plan.
- Tangible Personal Property: The special-needs beneficiary’s share of tangible personal property, and their share of the proceeds when unselected items are sold, goes to the Trustee of the Special Needs Trust, not to the beneficiary.
- Distributions for Young or Incapacitated Beneficiaries: This provision never applies to the special-needs beneficiary; anything that would pass to them under it goes to the Special Needs Trust instead.
- Other residuary beneficiaries: When the residue is shared among several people, the special-needs beneficiary’s share passes to the Trustee of the Special Needs Trust, and the other beneficiaries take their shares outright or in trust as the plan provides. The special-needs beneficiary is left out of any children’s trusts.
- Ultimate Beneficiaries: If the special-needs beneficiary is an ultimate beneficiary, their share, including any share they take because another ultimate beneficiary has died, goes to the Special Needs Trust.
- Children’s Pot Trust: A special-needs child is not a beneficiary of the Children’s Pot Trust.
- The residue is divided into equal shares. The special-needs child’s share goes to their Special Needs Trust and the other shares go to the pot.
- The pot divides when the youngest of the other children reaches the pot age.
- If the special-needs child dies before the client, their share is treated like any deceased child’s share.
- Estate Plan Summary: The Estate Plan Summary describes the special-needs beneficiary’s share.
- It adds sections for the terms and the Trustee of the Special Needs Trust.
- Where the Summary and the governing document differ, the governing document controls.
Planning Considerations
These points come up in practice and are worth discussing with the client.
Independent Plans for a Couple
With Independent Plans, each person’s plan is drafted and assembled on its own, so the Special Needs Trust appears only in the plan whose interview includes it. To protect the beneficiary whichever person dies first, the attorney includes the trust in both plans. See this article for Washington and this article for Oregon for how Independent Plans are drafted.
The point does not arise in a Mirrored Plan, which places the trust in both Wills, or in a Joint Revocable Trust, which is one document for both spouses.
Retirement Accounts and Other Beneficiary Designations
Retirement accounts pass by beneficiary designation, not through the residue, so the Special Needs Trust share does not reach them automatically. A retirement account payable to the Children’s Pot Trust is divided among the pot’s beneficiaries only, and the special-needs child receives none of it. If the special-needs beneficiary should share in an account, the designation needs to name their Special Needs Trust for that portion.
Tangible Personal Property
SSI excludes household goods and personal effects, but it counts items held for their value or as an investment, such as gems, collectibles and jewelry not worn or held for family significance, and it excludes only one vehicle used for transportation (20 CFR §§ 416.1216 and 416.1218). Sending the beneficiary’s whole share to the Trustee means nobody has to sort countable items from excluded ones after a death. The Trustee can still give the beneficiary ordinary items at any time.
Practitioners handle this both ways. An attorney who prefers that household items pass outright can edit the clause, which leaves the sorting to the Personal Representative.
Distributions That Reduce Benefits
A distribution that reduces benefits can be the better choice, for example when the beneficiary reaches retirement or Medicare age, receives very little SSI alongside other benefits, or needs a short-term increase after which SSI can be reinstated within 12 months without a new application.
The Beneficiary’s Own Earnings
Wages from sheltered or accommodated employment are earned income for SSI, though the earned-income exclusions usually mean much of it does not reduce SSI. The beneficiary’s own wages can go into an ABLE account, within the annual contribution limit, and the Special Needs Trust can also fund that account. The trust’s fair-compensation limit applies only when a business owned by the trust employs the beneficiary.
Powers of Attorney
Federal Medicaid law counts as a person’s assets any income or resources they are entitled to but do not receive because of action by someone with legal authority to act for them (42 U.S.C. § 1396p(h)(1)), so giving up a share on their behalf can be treated as a transfer of assets. That is why the trust bars disclaimers on the beneficiary’s behalf. A durable power of attorney that authorizes the agent to disclaim does not reach this share.
The Name of the Trust
Some families find “Supplemental” gentler than “Special.” The trust’s name appears on account titles and statements, and some practitioners keep both words out of the name so it does not announce the beneficiary’s disability. The name can be edited in the finished document.
The Special Needs Boilerplate Clause
The boilerplate clause is designed to introduce structural flexibility into a plan where it is unknown:
- Whether a beneficiary will ever require benefits
- What laws will apply at the time of administration
- What specific trust terms may be required for compliance
This provision is forward-looking. It is designed to preserve flexibility if eligibility issues arise in the future. It is not a drafted special needs trust for a beneficiary who is currently receiving benefits; the Special Needs Trust described above is.
Including a Special Needs Trust does not change or remove this clause. When both are in a plan, the clause applies to the other beneficiaries.
The Structural Approach
The special needs provision may be added through the Boilerplate Choices tab in any Will, Revocable Trust, or Joint Revocable Trust. See this article for Washington and this article for Oregon.
In addition to that clause, trusts created under an estate plan can be structured to allow later adaptation if needed. This structural flexibility may include:
- Selecting an absolute discretion distribution standard exercisable by an Independent Trustee
- Appointing a non-beneficiary or Independent Trustee
- Allowing Trustee removal and replacement through the Appointment and Removal of Trustees tab
These design features create a framework that can be adjusted if benefit eligibility becomes relevant.
In Washington, the Trustee of a trust that can no longer be revoked can also move its property into a special needs trust for a beneficiary who may qualify for benefits based on disability, whether or not the beneficiary receives them yet (RCW 11.107.060). Agile EP’s documents do not restrict this power. It reaches only property already held in trust, so it does not reach a share that would otherwise pass outright; the boilerplate clause covers that case.
Oregon has no decanting statute. There, the boilerplate clause’s power to reform a trust, or a court modification for circumstances the client did not anticipate (ORS 130.205), does this work.
What the Boilerplate Clause Does
If selected, the special needs clause provides that no distribution will be made to or for a beneficiary if doing so would:
- Permanently interfere with eligibility for means-tested benefits, or
- Inappropriately reduce the type or amount of available benefits
If eligibility concerns arise, the Personal Representative or Trustee (and, if required, an Independent Trustee) may, before assets are distributed:
- Establish a separate special needs trust for the sole lifetime benefit of the beneficiary, or
- Modify or reform an existing trust so that it operates as a special needs trust
Such modification may occur judicially or, where permitted, unilaterally under the governing instrument.
The purpose of these powers is to allow adjustment at the time of administration, rather than attempting to predict all contingencies at the time of execution.
Limitation for Marital Deduction Trusts
If the plan includes a marital deduction trust (such as a QTIP trust), the special needs provision may not be used in a way that would disqualify that trust from the federal estate tax marital deduction. Marital deduction qualification requirements remain controlling.
Additional Resources
Below are some resources discussing this approach.
- Carl M. Webber and J. Amber Drew, “Every Will Needs a Paragraph Allowing for a Supplemental Needs Trust,” Illinois State Bar Association, Elder Law newsletter, April 2013 (read the article). Explains why a Will should let the Executor create a supplemental needs trust for a beneficiary who becomes disabled after the Will is signed, with a sample clause.
- RCW 11.107.060 (read the statute). Lets a Washington Trustee move trust property into a special needs trust for a beneficiary who may qualify for benefits based on disability, whether or not the beneficiary receives them yet.