How a Special Needs Trust Can (and Cannot) Be Used

A Special Needs Trust (SNT) is one of the most effective planning tools for families who want to provide long-term financial security without putting their child’s public benefits, such as SSI or Medicaid, at risk. While an SNT offers powerful protections, it also comes with rules and limitations that must be understood to avoid unintended consequences.

This article provides an overview of how an SNT can be used and what it cannot be used for, so families can plan responsibly.

What a Special Needs Trust Can Be Used For

The main rule is that an SNT may only be used to supplement, but not replace, government benefits. The trust can pay for “non-essential” things or services that improve the person’s quality of life. These non-essential expenses are called supplemental needs. Supplemental needs are extras that go above and beyond what is paid for by government benefits. It can be a wide variety of things, such as:

-  Food

-  Medical and dental care not paid by Medicaid

-  Therapy or counseling

-  Personal aides or caregivers

-  Transportation (car, gas, repairs, insurance, Uber/Lyft)

-  Computers, phones, or electronics

-  Furniture, clothing, and household items

-  Legal or accounting services

-  Entertainment (books, movies, classes)

-  Elective surgery

-  Gym memberships or fitness equipment

-  Funeral and burial costs

-  Haircuts and personal care

-  Hobbies and hobby supplies

-  Home repairs, lawncare, and maintenance

-  Pets, pet food, and vet bills

-  Storage units

-  Tickets for shows or sports (even for a helper to come along)

-  Educational and training

-  Cable, Netflix, Internet

-  Vacation (including the expenses of a helper, if needed)

This is not a full list. Any cost that improves the beneficiary’s life that is not already covered by SSI or Medicaid is likely allowed.

As long as the trust is drafted and administered correctly, assets placed in an SNT are not counted as resources for SSI and Medicaid eligibility.

What a Special Needs Trust Cannot Be Used For

Certain types of expenses should not be paid for by the SNT because it can cause the beneficiary to lose part or all of their SSI benefit. There are two main rules:

Rule 1: No Direct Cash Payments to the Beneficiary

Any person who receives SSI and Medicaid, should not receive money directly from a trust (or from any person for that matter). If a person who receives SSI and Medicaid receives cash (or cash equivalents, such as a gift card or prepaid card), the cash will be counted as unearned income.

All unearned income reduces SSI benefits dollar-for-dollar, and the first $20 is disregarded. For example: If a person gets $200 in cash, their SSI check goes down by $180. The first $20 does not count.

Always avoid giving cash directly to the beneficiary. Instead, a trustee should pay for the beneficiary’s expenses. For example, if the beneficiary wants a computer, the trustee should purchase it directly from the seller using the trust funds. This way, the trust funds do not count as unearned income. The trustee should not give money to the beneficiary to buy the computer. Money withdrawn from the trust and put in the hands of the beneficiary will count as unearned income.

There is a way around this rule that allows the trustee and the beneficiary some flexibility through the use of a True Link Card. A True Link Card is a pre-paid, reloadable Visa card that is linked to an SNT. The card is managed by the trustee, who controls what the card can be used for, how much can be spent, and even the time of day it can be used. The beneficiary is the cardholder and can use the card to make allowable purchases. However, the beneficiary cannot use the card to access cash.

The federal government has authorized the use of a True Link Card as a way to make payments from an SNT. When it is used properly for allowable expenses, the use of a True Link Card will not count as income and will protect government benefits.

It is a great tool because it encourages independence and gives the beneficiary more freedom to make everyday purchases without having to seek the trustee’s permission before every purchase.

To create a True Link Card, the trustee can open an account by using the True Link Financial website: www.truelinkfinancial.com. As of 2025, the monthly fee to use the True Link Card is $12.

Rule 2: No Payments For Shelter (without penalties)

An SNT should not pay for shelter expenses, which includes:

• Rent,

• Mortgage,

• Property taxes, and

• Utilities – such as gas, water, electric, sewer, or trash.

If a trustee (or anyone else) pays for the beneficiary’s shelter, even in part, it is considered In-Kind Support and Maintenance (ISM). ISM causes a reduction in SSI benefits. ISM essentially means that someone else is helping an SSI recipient with their shelter costs, and this can lower the person’s SSI benefits.

Before September 2024, food used to be considered ISM, but that is no longer the case. And prior to March 2005, clothing used to be considered ISM, but that is also no longer the case. This means that today, only shelter counts as ISM. An SNT can pay for food and clothing, but not shelter (without penalties).

How ISM Reduces SSI

Example 1: No Rent Paid

Jane gets $967/month in SSI. She lives rent-free with her parents.

-> Her SSI check will be reduced. Jane’s SSI check will now be $644.67.

Here, the one-third reduction penalty kicks in, which happens when the SSI recipient lives with the person who is giving them free shelter.

This is not a terrible result, but there are better ways to handle shelter expenses, as we will see.

Example 2: Fair Share of Rent Paid

Jane gets $967/month in SSI. She lives with roommates and uses her SSI money to pay her share of the rent.

-> No reduction in SSI. But realistically, Jane may have little SSI money left after rent.

This is also not a terrible result, but there are better ways to handle shelter expenses.

Example 3: SNT Pays the Rent/Mortgage

Jane gets $967/month in SSI. Jane’s SNT pays her rent of $1,250.

-> Her SSI check will be reduced. Jane’s check will now be $624.67.

Here, the presumed maximum value penalty kicks in, which happens when the SSI recipient is receiving shelter from someone that they do not live with. The presumed maximum value penalty is $342.33 (in 2025).

The result would also be the same if the SNT makes a mortgage payment. Whether the SNT pays for the rent or the mortgage payment, the presumed maximum value penalty applies.

This is not a terrible result, but there are better ways to handle shelter expenses.

Example 4: SNT Transfers Money to an ABLE Account That Pays the Rent

Jane gets $967/month in SSI. The SNT transfers money to an ABLE Account, and then the ABLE account pays her rent of $1,250.

-> No reduction in SSI. Jane keeps her full $967.

Using this method is a permissible transfer and a smart way to protect the SSI benefit. To avoid complications, the ABLE account withdrawal must be completed in the same calendar month as the payment for rent.

This is a great result and one of the best ways to handle shelter expenses.

Example 5: SNT Owns the House Outright

Jane gets $967/month in SSI. She lives in a house owned by the SNT. There is no mortgage payment due on the house. She lives there rent-free.

-> No reduction in SSI. Jane keeps her full $967.

Placing a home (that is fully paid off) into an SNT is a great strategy and ensures the SSI benefit is not reduced. However, this strategy is only recommended for a Third Party SNT. (This strategy should never be used with a First Party SNT - due to the Medicaid Payback attached to a First Party SNT).

Additionally, putting a home in an SNT can create tax issues (capital gains, estate tax, property tax, homestead exemption). The timing of when to place the home into the SNT is critical for avoiding tax issues. Talk to a special needs estate planning attorney to help you with this process.