A lot of clients asked me, “What can I use a special needs trust for? What distributions are OK? And which ones are prohibited?” In this post, we’re going to be talking about special needs trust restrictions, including what you can or can’t spend the money on and how to give your disabled child the most freedom and independence while still protecting them.

If we haven’t met, I’m Ellen Cookman and I’m an estate planning attorney who specializes in special needs planning.

I would like to talk with you today about how to set up a special needs trust to protect your loved one who has special needs.  We’ll explore the importance of setting up a trust and why a special needs trust is special.

I also want to share with you what not to do with a special needs trust but also what to do to maximize the benefit for your child.

I’m a certified specialist in estate planning and my law firm has helped hundreds of families navigate the complicated process of setting up their estate plans with special needs components. I’m excited to share all the knowledge that I’ve learned over the years with you.

Let’s get right into it.

What Is a Special Needs Trust?

A special needs trust is intended to be used for anything that your disabled loved one needs. Honestly, it’s very, very broad. You’ll encounter very few special needs trust restrictions.

You can use money in a special needs trust for anything the beneficiary needs, like:

  • Food
  • Housing
  • Transportation
  • Education
  • Health care
  • Baseball cards
  • Anything at all…for that child’s benefit

In most cases, a parent or grandparent sets up a trust for the disabled child to ensure they get the care they need after the parents are gone. Even if the child (who may be an adult or will be soon) has several neurotypical siblings or other support systems, a special needs trust is a critical piece of estate planning when you have a child with special needs.

The trust helps the child or those caring for the child maximize available assets to spend for that child’s needs. And that’s really important because often disabled adults have significant expenses and needs.

Chances are you’re not mega-rich. I want you to know you don’t have to be to make sure your disabled child is cared for after you’re gone, when you understand about special needs trusts and their restrictions.

With that said, I often see certain mistakes in how special needs trusts are set up. My goal here today is to cover what those few things are and how to get around them.

Top Special Needs Trust Restrictions

Special Needs Trust Restrictions

Special Needs Trust Restrictions

1. Don’t Block Public Benefits

We’ll typically set up special needs trust to say that it will supplement anything that the disabled child is already receiving from public benefits. You don’t want the trust to supplant public benefits. You want it to supplement those benefits. That way, the trust assets go further.

Let’s look at Medi-Cal, for example.

California’s version of the federal Medicaid system is a health insurance program. Some doctors in California don’t take this insurance. In this case, the special needs trust can pay for other doctors that don’t accept the child’s medical coverage.

Medi-Cal benefits are very important to disabled individuals.  So I write the trust so that it supplements what the child might already receive, not replacing that care they can already receive at low or no cost from the government.

2. Don’t Create Unnecessary Special Needs Trust Restrictions

You can run into issues if a special needs trust is super restrictive. Yes, sometimes we’re our own worst enemies when we insert unnecessarily restrictive language.

You don’t want the trust to say it can only be used for a few things because you can’t always foresee precisely what your child will need. And you could end up tying those funds up legally when your child needs them the most.

If you’re currently considering how to set up a special needs trust, I encourage you to also check out my blog post, How Does a Special Needs Trust Work?

3. Don’t Set Up the Trust to Distribute Cash

It’s important to know the special needs trust spending rules. The special needs trust is not supposed to distribute cash outright to the beneficiary, since the government treats this as income that works against the child’s public benefits. In comparison, if the trust pays expenses directly, that’s not income.

For example:

I want my child to get $100 a month of allowance. That’s doable. But if you’re distributing $100 a month to them, you’ll run into issues.

That’s going to eat away dollar for dollar at their Supplemental Security Income (SSI) Benefits, so if they were receiving $1040/month of SSI, that will decrease to $940/month or so.

But you’re saying, “Ellen, my child needs spending money. They are capable and I want them to have money they can control. They deserve freedom and independence based on their abilities.”

I 100% agree with you. There are ways around this.

You can get your child a credit card. This card can have a monthly spending limit of, say, $500. So your child can spend up to $500 a month on things they want, and the trust pays the invoice.I think this can be better than carrying cash around everywhere, which can be lost or stolen.

Another option is the True Link card, a debit card which can be pre-program to allow for payments of certain categories of items and not for others.

Let’s say that your adult child can drive. They go to the gas station to buy gas.

The True Link card can pay for gasoline because it’s programmed to do so.  However, the adult child can’t buy cigarettes just because they’re paying at a gas station.

The trustee controls the programming and can change the allowable categories if in the best interest of the child. If the child needs to spend more than $500/month down the road because of inflation, the trustee can change the available monthly amount.

4. Think Carefully Before Having the Trust Pay for Food and Housing

It’s one thing to say, “Let’s follow Special Needs Trust rules” but it’s another to know the in’s and out’s of the law well enough to say, “We can have the trust pay for something, but maybe we shouldn’t.”

You’d be surprised to find food and housing in this category.


I’ll explain. It all has to do with Supplemental Security Income (SSI).

At age 18, all of a sudden, a child becomes an adult, and his or her

parent’s money is not attributable to them.

So now your child might be poor. And if your child has under $2,000 in the bank and is disabled per Social Security Administration (SSA) guidelines, they can qualify for Supplemental Security Income.

They basically can’t work and support themselves.

In California, SSI is currently $1,040 a month. The program intends this money to pay for your food and housing. That’s already not a whole lot of money in California.

And this is ridiculous, but SSA tells us that if somebody else is paying for your food and housing, you don’t need $1,040 a month.

Let’s say you as a parent have your child live in your house for free. Basically, your child does not have to pay for room and board. You are paying for that. That’s somebody else paying for their food and housing. Your child’s $1,040 a month check will decrease by about $250 a month (i.e., 1/3 of the federal benefit rate).

So now your child is receiving less each month, which is not so good. Most people who come to me to set up a trust aren’t mega-rich. Their child needs all the money they can get.

If a special needs trust is paying for that food and housing, the same thing happens. As far as SSA is concerned, someone else is paying for room and board. Your child doesn’t need that money.

Anything I can do to avoid decreasing what your child takes in benefits, the better. And letting benefits, not the trust, pay for food and housing, is one way we can do it.

5. Do Consider the What-Ifs

Now, the last special needs trust restriction is a big one. None of us knows what the future holds. What if the government reduced benefits so that your child with special needs can’t pay their rent. Other issues could arise where $1,040 doesn’t pay the bills.

For this reason, I still like to put in my special needs trusts that they still can pay for food and housing if the trustee makes a reasonable analysis and they decide that the benefits of providing food and housing are greater than the decrease in SSI.

So let’s say the trust is paying for $1,500 of food and housing and the SSI amount is decreased only by $250.

You’re still coming out $1,250 ahead! So I like saying in my trusts that you still can make distributions for food and housing, even if it might decrease SSI. The trustee simply needs to

6. Do Set Up an ABLE Account in California

You know I have clients who ask: should I set up a special needs trust or an ABLE account? It’s as if they think it’s “ABLE account vs special needs trust”. But the truth is your disabled child needs both.

ABLE accounts let a disabled person save more than $2000 without it interfering with their public benefits. You, grandma, or someone else could deposit up to $16,000 into this account each year, and your disabled child can also save money they make from working in this account. Like a trust, this account can pay for almost anything your adult child needs.

It is, however, important that you set this account up correctly to maximize benefits. I go into more detail about it in my video on ABLE accounts, so I encourage you to watch my video on ABLE accounts.

In a nutshell, if the special needs trust makes distributions monthly to the ABLE account — let’s say $1,200 a month — and then the child’s ABLE account turns around and pays for food and housing, there’s no decrease in SSI.

It’s really wonderful. If you wanted to, you could really pay for food and housing through the ABLE account instead of directly from you or from the trust. This wouldn’t decrease the child’s SSI benefits, but it would allow them more money to live the lifestyle you’d want for them.

7. Do Let the Trust Pay for Fun Stuff

It’s true. There are very few special needs trust restrictions to know about. But the trust should be drafted to say that the trustee has complete discretion over anything the child needs. And we all need some fun in our lives. So yes, the trust can pay for fun stuff.

Does your child like to collect baseball cards or go to the Special Olympics or Disneyland? The special needs trust can pay for all of those things. We can write it into the trust, and the trustee can make sure some of the money pays for something the child wants to do for fun.

A special needs trust is really a wonderful vehicle to take care of your child and still provide them maximum independence and quality of life.

Avoiding Special Needs Trust Restrictions

As you can see, setting up a special needs trust and having the correct language is essential for having the special needs trust to act the way that you want when you’re gone.

Choosing a special needs trust attorney who understands all of these things and can draft the trust correctly is super important. Watch my estate planning webinar for additional information on setting up special needs trusts.