Special needs trusts (SNTs) are a practical and effective way to provide financial support for a person with special needs without jeopardizing their eligibility for public benefits programs. However, creating an SNT requires a grantor, or the person creating the trust, to determine whether to establish an “inter vivos” or “living” trust, or a “testamentary” trust, which is funded upon a grantor’s death. For various reasons, inter vivos SNTs typically are the better option. However, testamentary SNTs may be preferable in limited situations involving a spouse over the age of 65 for skilled nursing care.
Inter Vivos or Living Special Needs Trusts
An inter vivos or living special needs trust (SNT) is a stand-alone trust, or a trust that a grantor creates during their lifetime. After creating an inter vivos trust, a grantor may fund it immediately or arrange periodic funding. As soon as the grantor funds the trust, a beneficiary can immediately receive distributions from the trust as needed, which avoids the delays inherent in a testamentary trust, as it is tied to the grantor’s death and estate administration.
Furthermore, the grantor can manage the trust and guide the beneficiary during the grantor’s lifetime, providing the beneficiary with both financial and emotional security. The beneficiary can become accustomed to using funds from the trust as appropriate, making the transition after the grantor’s death easier and less stressful.
While inter vivos special needs trusts are generally a superior choice to the testamentary SNT, an exception exists when planning for a spouse’s financial support. This is due to Medicaid requirements to pay for skilled nursing care.
Revocable v. Irrevocable Inter Vivos SNTs
Inter vivos SNTs can be revocable or irrevocable during the grantor’s lifetime. Grantors can change the terms or revoke a revocable SNT trust in their lifetime, so long as they have legal capacity to do so. For example, a grantor can remove a trustee if the trustee fails to administer the trust in accordance with its terms. A revocable SNT becomes irrevocable only upon the grantor’s death or under certain conditions that the SNT terms dictate.
In contrast, an irrevocable SNT has fixed terms that a grantor cannot change. A grantor also cannot revoke irrevocable special needs trusts. The only exception is if the grantor structures the trust so that a trustee or other individual can make specific changes to the trust in response to changes in federal or state law or for other specified limited purposes. An irrevocable SNT may be beneficial in some situations, and practically more likely to be approved quickly by SSI and Medicaid.
Testamentary Special Needs Trusts
Grantors create testamentary SNTs through the terms of their last wills and testaments. As a result, the SNT has no legal or practical effect during the grantor’s lifetime, nor does it have any benefit to the beneficiary. The SNT does not exist until the grantor’s death, and even then, it only exists if certain conditions are met. More specifically, the intended beneficiary of the SNT must survive the grantor and must be entitled to receive proceeds from the estate.
For instance, a will may state that an individual may leave his entire estate to his spouse. If the spouse passes away before the individual, the will states that the entire estate will fund an SNT for a child with disabilities. As a result, the SNT will not exist unless the grantor’s spouse predeceases him, and his child with disabilities survives him. In that situation, once the grantor passes away, the estate executor or personal representative will initiate estate administration and the SNT and fund the SNT with estate proceeds.
In practice, parents can provide financial support for a child with disabilities throughout their lifetime. Even after one parent passes away, the surviving parent can continue to provide necessary financial support. If the surviving parent has a testamentary SNT, then the SNT will continue that financial support for the child following the parent’s death. This type of SNT can be cost-effective in deferring expenses until the grantor’s death. However, it cannot be used by other relatives to gift money to the trust.
As mentioned above, it can also avoid a situation in which a surviving spouse becomes ineligible for public benefits programs. However, it does not provide immediate support for a child with disabilities or allow other relatives to gift money to it. Also, if laws or rules change on SNTs it will not automatically be grandfathered under existing laws and rules.
Frequently Asked Questions
Can a special needs trust be used alongside other estate planning tools?
Yes. An SNT often works best as part of a broader estate plan rather than as a standalone document. Families may pair an SNT with life insurance, beneficiary designations, or structured gifting strategies to ensure the trust is adequately funded over time. Coordinating these tools helps avoid accidental transfers that could disrupt benefits and ensures long‑term financial stability for the beneficiary.
How does choosing a trustee differ between inter vivos and testamentary SNTs?
With an inter vivos SNT, the grantor can observe how a chosen trustee manages funds during their lifetime and make changes if the trustee is not a good fit. In contrast, a testamentary SNT does not become active until the grantor’s death, meaning the trustee’s performance cannot be evaluated in advance. This makes trustee selection—and naming alternates—especially important when relying on a testamentary structure.
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