The Law Office of Jeffrey P. Story, LLC
Special Needs Trusts

Special Needs Trusts

There are a variety of uses for Special Needs Trusts and they have various names that correspond with them. It is essential that all clients are asked about relatives with special needs, particularly if they are receiving Public Benefits, such as Medicaid, Supplemental Security Income from Social Security or HUD Section 8 Housing benefits.

If the special needs relative suddenly receives an unplanned inheritance, by will or through probate, they may lose their Public Benefits and have to hire an attorney to help them get these benefits restored. All of my wills and trusts have provisions for Special Needs Trusts embedded in them, in order to plan for a possible disability at a later date, when an heir may need their Public Benefits sheltered from an inheritance.

Medicaid Planning following statutory code in Illinois may allow elders to transfer their home and assets to a Special Needs relative, without incurring a penalty, if the facts of the case line up with the law. It would be helpful for that relative to have a Special Needs Trust in place in order to receive this house or assets with minimal oversight from the State.

The following is a brief summary of the major categories of Special Needs Trusts. There are many details and rules that must be followed to safely augment a disabled person’s Public Benefits that are not delved into here, for the sake of brevity.

Self-Settled OBRA Trusts

One type of Self Settled Special Needs Trusts is also known as OBRA (d)(4)(A) Special Needs Trust. This is a standalone trust designed to receive funds for a disabled person, in order to allow them to receive Public Benefits and supplement and enhance the quality of their lives by indirectly receiving the benefits of the funds contained in the trust. The trust may now be established by the beneficiary themselves, or a parent, grandparent, guardian or court. It must name the State of Illinois as the residuary beneficiary, upon the death of the disabled person, up to the amount of benefits the State has paid. The Trustee for this trust may be a relative, friend or a professional fiduciary. My firm helps persons living with disabilities and their families establish these trusts for a flat fee and then offers a client maintenance plan for an annual fee to help the Trustee with questions that arise and to be able to respond to legislative changes that demand adjustments to the trust. My firm is a partner of the overall care management team of a disabled individual. Special Needs Planning is essential to obtain the highest amount of benefits and to have adequate Estate Planning for the transition to a new Guardian or Power of Attorney for the person living with the disability.

The other major category of Self-Settled OBRA Trusts is the (d)(4)(C) Special Needs Trust. This is also commonly known as a Pooled Trust. This trust is established and managed by a non-profit organization, whereby the person living with the disability or a parent, grandparent, guardian or court establishes a sub-account in a pool of other disabled person’s accounts. Upon the death of the disabled person, the State receives the remaining funds, less any reasonable amount the Pooled Trust needs to deduct for administrative fees. Thus, the trust is pre-established and the person living with the disability has a built in Trustee to manage their funds and disburse them safely for them. This can be an ideal way to handle a person living with a disability’s supplemental funds, however, there are some significant fees associated with the set-up of the account in the pooled trust, annual fees, disbursement fees, and associated services fees related to the account, such as a CPA handling their annual taxes and payment to a bank to manage the investment of the funds. The total of these fees may make the Pooled Trust less desirable for smaller amounts. This Special Needs Trust can be used to help an elder save assets even if that elder is over 65, however, it incurs a penalty of an equivalent amount that must be paid off with a Medicaid Compliant Annuity paid to a skilled nursing facility.

When a Special Needs Trust is established following a catastrophic injury, with proceeds from a personal-injury settlement, there are special rules to must be followed to first pay back the government for benefits received prior to receiving the court settlement. Once this money has been properly paid to cover the previous benefits received, the Special Needs Trust can then shelter the disabled person’s remaining personal injury award. Any money remaining in this trust must be paid to the State of Illinois, upon the disabled person’s death, unless that person has a child living with a disability.

Third Party Special Needs Trusts

This type of trust, also known as a supplemental needs trust, is desirable for immediate use and for Estate Planning, where a friend, relative or third party may establish the trust during their lifetime in order to allow other family members or friends to contribute money to the trust on the person living with the disability’s behalf. It can be nominally funded and receive the designated funds from the grantor’s estate, upon their death. There are no State payback provisions required under this type of Special Needs Trust, even if it is for an elder over 65. This type of trust may be an irrevocable standalone trust or it may be a revocable trust established by will or a revocable living trust of the grantor.

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I hired Jeffrey to help me navigate the paperwork for my mother’s Medicaid application. I was being 100% honest on the application, but I knew there were going to be things in our case that looked odd to the caseworker. How true this turned out to be. The application was ultimately approved, but it took nearly a year. In that terribly stressful time, through every additional set of document requests, I relied on Jeffrey’s advice and counsel. He kept me calm, focused, and on track. He knew when to push back when the requests were ridiculous, and when to seek additional advice when they were baffling. And through it all he never billed me for a single dollar more than the flat fee I paid up front. I highly recommend Jeffrey.

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