Andrew Busa: Welcome to another episode of The Human Side of Wealth. My name is Andrew Busa, Director of Financial Planning at RWA Wealth Partners.

I’m excited to be joined today by my colleague, Jacqui Rahn, Head of Fiduciary Services. We’re discussing special needs trust planning: what these trusts are, how to design and implement them successfully, and some of the common mistakes families should avoid.

Jacqui, let’s start with your background. How did you get into this subject, and why are you passionate about it?

Jacqui Rahn: My background is as an estate planning attorney. I spent several years learning the nuts and bolts of creating estate plans and drafting documents such as wills and trusts.

Over time, I found myself becoming more interested in how those documents actually work in people’s lives. At the end of the estate planning process, clients would walk away with a set of documents, put them in a drawer, and often never think about them again. I became fascinated with what happens after that and how we make those plans come to life.

That led me from the planning and drafting side of the profession into trust administration, where we help families make those plans work. We also become heavily involved when someone passes away, when a trust is created, or when a trust terminates.

I enjoy helping families through what are often complicated and emotional situations. I also find it rewarding to take extremely complex plans and documents and explain them in a way that everyday people can understand.

Andrew: Let’s build on that. At a high level, what is a special needs trust, and how does it work?

Jacqui: A special needs trust is designed to supplement, not replace, public benefits. It’s intended for individuals with disabilities who either currently receive public benefits or may become eligible for them in the future.

The goal is to avoid accidentally making someone ineligible for those benefits. If a trust isn’t structured properly, or if assets are distributed directly to the beneficiary, that person could exceed income or asset limits and lose important benefits. Because of that, these trusts require careful planning and precise drafting.

Andrew: When should families start thinking about this kind of planning?

Jacqui: There are multiple situations where it becomes relevant.

Sometimes a family has a child or grandchild whose disability is apparent from birth, making it likely that public benefits will be needed at some point during their life.

In other cases, circumstances change. Someone may develop an illness, suffer an accident, or reach a stage of life where they need publicly funded programs. Special needs trust planning can become important in any of those situations.

Andrew: Let’s talk about the different types of special needs trusts. There are first-party trusts, third-party trusts, and pooled trusts. How do you distinguish among them?

Jacqui: A first-party special needs trust is funded with assets that belong to the person with the disability. These are generally considered a last resort because they typically include a Medicaid payback provision.

That means when the beneficiary dies, some or all remaining trust assets may have to be used to reimburse the state for benefits received during that person’s lifetime.

The preferred option, whenever possible, is usually a third-party special needs trust. In that case, a parent, grandparent, sibling, or another individual creates and funds the trust with their own assets.

Because the funds never belonged to the beneficiary, there generally is no payback requirement at death, and any remaining assets can pass to other family members or beneficiaries.

Andrew: Have you seen situations where families confused these trust types or used the wrong structure?

Jacqui: Absolutely. These trusts are highly technical, and the public benefit programs they’re designed to work alongside are equally complex.

Programs such as Medicaid and Social Security have extensive regulations and very specific requirements regarding how these trusts must be drafted and administered.

Ideally, the trust document should clearly state from the very beginning that it is a special needs trust, identify whether it is a first-party or third-party trust, and explain its purpose. The clearer the drafting, the easier it is to avoid confusion and administrative mistakes later.

Andrew: Let’s talk about the importance of preserving public benefits. Why not simply leave assets directly to a beneficiary?

Jacqui: Consider someone receiving Social Security and Medicaid benefits who inherits a million dollars outright when a parent dies.

Receiving those assets directly could immediately make that person ineligible for benefits because many programs have income and asset limitations.

In addition, the beneficiary may not be in a position to manage those assets independently. In some cases, a court might need to appoint a guardian or conservator, creating additional expense and complexity for the family.

A properly structured trust can avoid those issues while still providing financial support.

Andrew: One of the most compelling aspects of these trusts is their ability to enhance quality of life. Can you share an example?

Jacqui: Absolutely. A few years ago, I worked with a client who was disabled and had a full-time caregiver. Her parents established a special needs trust that allowed her to take an annual trip with that caregiver.

They visited Disney World, spent time at the beach, and even traveled to Europe.

Families naturally focus first on necessities such as healthcare, housing, and food, and those concerns are critically important. But a well-designed special needs trust can also create opportunities for enrichment, travel, education, and experiences that make life more fulfilling.

Andrew: Once the trust is established, what is the most important decision that follows?

Jacqui: Choosing the trustee.

These trusts involve complicated regulations and interactions with state and federal benefit programs. You want someone who understands how these systems work and has experience administering special needs trusts.

At the same time, it can be incredibly helpful to involve a family member, either as a co-trustee or as someone who works closely with the trustee.

Family members often have deep knowledge of the beneficiary’s needs, preferences, medical providers, support systems, and day-to-day life. The ideal arrangement frequently combines professional expertise with personal familiarity.

Andrew: How do trustees balance preserving benefits with improving quality of life?

Jacqui: It can be a delicate balancing act.

In some cases, it may actually make sense to allow a beneficiary to lose eligibility for certain benefits if the trust has sufficient assets to support them independently. It doesn’t always make sense to restrict trust distributions simply to preserve a modest monthly public benefit.

In other situations, public benefits provide substantial support, and the trust is used primarily for additional opportunities such as education, recreation, or special experiences.

Every situation is different, and trustees must constantly evaluate how the trust and benefits interact.

Andrew: Where does your role fit into this process?

Jacqui: We often help connect families with attorneys who specialize in drafting special needs trusts. Because these trusts are so technical, it’s important to work with someone who has extensive experience in this area.

We also help trustees understand their responsibilities, including what distributions are permitted, best practices for administering the trust, and ways to structure payments appropriately. For example, paying vendors directly rather than distributing funds directly to a beneficiary can often help avoid unintended consequences.

Andrew: That leads nicely into common mistakes. What do you see most often?

Jacqui: One of the biggest mistakes is making distributions directly to the beneficiary.

Even with a properly drafted trust, directly handing money to the beneficiary can jeopardize public benefits.

Another common issue involves paying for expenses that a benefit program already covers. Different programs have different rules, so trustees need to understand what expenses are permitted.

Funding mistakes also occur. For example, a first-party trust should not receive third-party assets, and a third-party trust should not receive assets that belong to the beneficiary. Mixing those funds can create serious problems.

Andrew: Have you had to help families unwind those mistakes?

Jacqui: Yes. Sometimes the solution involves creating a new trust or restructuring the arrangement. Those situations can become quite complicated, which is why prevention is always preferable.

Andrew: Any other guidance you’d offer to help trustees avoid mistakes?

Jacqui: One recommendation I often make is creating a side letter.

A side letter is separate from the trust document and gives the creator of the trust an opportunity to explain their intentions, values, and hopes for the beneficiary. It can include practical knowledge about benefit programs, caregiving arrangements, personal preferences, and other information that may be difficult to capture in legal language.

When future trustees step into the role, that guidance can be invaluable.

Andrew: That seems useful not only for special needs trusts but for trust planning in general.

Jacqui: I agree. We often recommend side letters in many different trust situations.

Andrew: Let’s talk about flexibility and review schedules. How often should these trusts be revisited?

Jacqui: A good rule of thumb is every five to ten years.

The primary reason is that laws and regulations change. Public benefit programs may update eligibility requirements, income limitations, or trust provisions that must be included in the document.

It’s also important to review trustee appointments and other key roles. The people named in a trust may no longer be available, appropriate, or involved in a beneficiary’s life.

Regular reviews help ensure the trust continues to reflect both the law and the family’s wishes.

Andrew: Why is flexibility so important in these documents?

Jacqui: Circumstances change. A trust should provide guidance while still granting trustees enough discretion to respond to future developments.

You don’t want a trust so rigid that it prevents a trustee from making decisions that could significantly improve a beneficiary’s life simply to preserve a small public benefit.

Some trusts specifically authorize trustees to make distributions even if doing so could affect eligibility, provided the trustee believes it is in the beneficiary’s best interests.

We also see contingent special needs trusts, where a broader estate plan includes provisions that automatically create a special needs trust if a beneficiary is receiving public benefits or has a qualifying disability when assets are distributed.

Features like these provide flexibility and help trustees adapt to changing circumstances.

Andrew: We’ve covered a lot of ground today. If listeners remember only one thing, what would you want it to be?

Jacqui: Don’t put it off.

Estate planning can be difficult because it requires thinking about the future and what happens after we’re gone. But the sooner you begin planning, the better prepared your family will be.

Once a plan is in place, revisit it periodically and make updates as needed. Having something established now is far better than leaving loved ones scrambling later.

Andrew: Jacqui, thank you for joining us.

Jacqui: Thank you.

Andrew: And thank you for listening to another episode of The Human Side of Wealth. If you enjoyed this conversation, please visit us at rwawealth.com and connect with one of our advisors. We’d be happy to help you think through any special needs trust planning questions you may have. Thanks again for listening, and we look forward to seeing you next time.