Special Needs Trusts in Utah: What Families Need to Know

Introduction

If you have a loved one with a disability, you want to ensure they are cared for both now and in the future. But traditional inheritance planning can unintentionally jeopardize their eligibility for important government benefits such as Supplemental Security Income (SSI) and Medicaid.

That’s where a Special Needs Trust (SNT) comes in. This powerful tool allows you to set aside funds for your loved one’s benefit without disqualifying them from means-tested government programs.

In this article, we’ll explain:

  • What a Special Needs Trust is and how it works

  • The difference between First-Party and Third-Party SNTs

  • What funds can be used in an SNT

  • How distributions can (and cannot) be made

  • Key considerations for families in Utah

What Is a Special Needs Trust?

A Special Needs Trust is a legal arrangement that holds assets for the benefit of a person with disabilities while preserving their eligibility for government benefits.

The trust is managed by a trustee (an individual, family member, or professional) who uses the funds to pay for expenses that supplement — but do not replace — government benefits.

Examples of what an SNT can pay for:

  • Medical and dental care not covered by Medicaid

  • Education and training

  • Transportation (e.g., wheelchair-accessible van, rideshare)

  • Recreational activities and vacations

  • Personal care items and technology

Examples of what an SNT generally should not pay for (directly):

  • Food

  • Rent or mortgage payments

  • Basic utilities

(These are considered “basic support” and could reduce SSI benefits if paid directly.)

First-Party vs. Third-Party Special Needs Trusts

There are two main types of SNTs, and the right one depends on whose money funds the trust.

First-Party Special Needs Trust (Self-Settled)

  • Funded with the beneficiary’s own assets — for example, money from an inheritance received outright, a lawsuit settlement, or back payments from Social Security.

  • Must be created before the beneficiary turns 65.

  • Upon the beneficiary’s death, remaining funds must be used to reimburse Medicaid for benefits provided during their lifetime.

Third-Party Special Needs Trust

  • Funded with assets belonging to someone other than the beneficiary — usually parents, grandparents, or other relatives planning ahead.

  • Often created as part of an estate plan, funded at the parent’s death (or during life).

  • Unlike a first-party trust, there is no Medicaid payback requirement. Instead, any remaining funds can go to other family members or charities after the beneficiary passes away.

Why Families Choose a Special Needs Trust

  • Protect Government Benefits: Ensures SSI, Medicaid, and other critical benefits remain intact.

  • Provide Supplemental Care: Funds can be used to improve quality of life beyond what government programs cover.

  • Peace of Mind: Parents and family members can rest easier knowing their loved one will be provided for in the long term.

  • Control & Oversight: A trustee you choose manages the money responsibly for your loved one’s benefit.

Key Considerations When Setting Up an SNT

  1. Choosing the Trustee

    • The trustee plays a critical role. You can select a family member, trusted friend, or a professional trustee.

    • Trustees must understand benefit rules, since improper distributions could reduce eligibility.

  2. Funding the Trust

    • Common sources include gifts, inheritances, life insurance, or lawsuit settlements.

    • Families often name the SNT as the beneficiary of a life insurance policy to fund future care.

  3. Timing Matters

    • A third-party trust is best set up before funds are ever given directly to the person with disabilities.

    • If the person has already received funds, a first-party trust may be required to protect eligibility.

  4. Utah-Specific Rules

    • Utah follows federal guidelines for SNTs, but you must ensure compliance with state-specific Medicaid rules.

    • Working with an attorney experienced in Utah estate planning is essential to avoid mistakes.

Alternatives and Related Tools

  • ABLE Accounts: Tax-advantaged accounts that allow individuals with disabilities to save up to $18,000/year (2024 limit) without losing benefits. Best for smaller amounts.

  • Pooled Trusts: Managed by nonprofit organizations, pooled trusts combine funds from multiple beneficiaries but keep accounts separate. Often an option for smaller estates.

How Cutler | Riley Law Can Help

At Cutler | Riley Law, we’ve helped many Utah families create Special Needs Trusts that provide security, flexibility, and peace of mind.

Why families choose us:

  • Experience with both first-party and third-party trusts

  • Flat-fee pricing so you know the cost upfront

  • Personalized plans tailored to your family’s needs

  • Compassionate guidance — we explain everything in plain English

Next Steps

Planning for a loved one with special needs requires care and expertise. Don’t leave it to chance.

Schedule your free consultation today to learn how a Special Needs Trust can protect your loved one’s future while preserving their government benefits.