Should You Create a Separate Special Needs Trust Instead of Using a Subtrust?

When a revocable living trust becomes irrevocable after the grantor’s passing, the assets are usually divided among the beneficiaries. Sometimes, one of those beneficiaries is a person with special needs who receives government benefits such as Supplemental Security Income (SSI) or Medicaid. In those cases, the revocable trust often contains language creating a special needs subtrust (sometimes called an “SNT subtrust” or “supplemental needs subtrust”) to hold that individual’s share.

This is a common and valid estate planning approach. A well-drafted subtrust can protect the beneficiary while preserving access to means-tested government benefits. However, after the death of the revocable trust's grantor, many families and practitioners choose to transfer the special need beneficiary’s share into a stand-alone, independent Special Needs Trust (i.e. stand alone third party special needs trust).

Why? Because separating the trust often provides more flexibility, clarity, and administrative ease over the long term.

Let’s explore the reasons in detail.

1. Administrative Flexibility and Separation

A stand-alone trust is an independent document, separate from the original revocable trust. This means it can be administered on its own terms without having to coordinate with the rules or costs of other subtrusts. Trustees can focus solely on the disabled beneficiary’s needs without worrying about how decisions impact the other beneficiaries.

From a very practical standpoint getting a separate bank account in the name of a subtrust can be challenging compared to a stand-alone trust because its rarely done at most commercial banks.

The financial account has a more complex title because the title of the account has to reflect both the master trust and the specific subtrust.

For example, presume our special needs beneficiary is Ben Doe. The name of the financial account might need to be something along the lines of: [name of trustee], as trustee of that special needs subtrust for Ben Doe found within the John Doe Revocable Living Trust, dated [date of master trust].

Banks and other financial institutions are just more used to seeing [name of trustee], as trustee of the Ben Doe Special Needs Trust, dated [date].

2. Clarity for Public Benefits Agencies

One of the strongest argumetns in favor of independent/stand alone special needs trust is that government agencies, like Medicaid and SSI, frequently review trust documents to ensure that assets held for a disabled person do not disqualify them from benefits.

A special needs subtrust embedded in a larger trust can sometimes confuse SSI or Medicaid caseworkers, who must parse through dozens of pages of provisions that apply to beneficiaries who are not disabled (if they attribute the wrong provisions to the special needs beneficiary, this can cause errors jeopardizing benefits).

By contrast, a stand-alone Special Needs Trust is a clean, focused document. It shows agencies exactly how distributions will be made, and that the funds are intended to supplement, not replace, public benefits.

This clarity reduces the risk of challenges, denials, or delays.

3. Trustee Selection and Tailored Powers

The person best suited to manage a general family trust may not be the right person to manage a special needs trust. Trustees of SNTs need to understand complex rules about distributions, benefits interaction, and allowable expenditures.

A stand-alone trust allows the family to appoint a trustee (or co-trustees) specifically for the special needs beneficiary. You can also grant customized powers to that trustee - such as the ability to contract with care managers, purchase adaptive equipment, or pay directly for therapies, without impacting the general provisions that govern other subtrusts.

The grantor certainly can designate different trustees for different subtrusts, but in our experience, they rarely do (i.e. the successor trustee for one beneficiary is the same successor trustee for all beneficiaries and subtrusts).

4. Future Funding Flexibility

Another argument for a separate SNT is its ability to more easily accept additional funding after the initial estate administration. Grandparents, siblings, or even friends may want to leave gifts or life insurance proceeds directly to the special needs trust in the future. Having a stand alone special needs trust ensures no commingling with funds due to other beneficiaries.

Because an embedded subtrust is tied to the estate of the original grantor, once the trust is funded and operating, it is more likely that additional contributions (even if earmarked for the subtrust) will wind up being commingled in the general trust fund. A stand-alone special needs trust, however, can easily and more clearly continue receiving assets for as long as the beneficiary lives.

5. Portability and Longevity

Life is unpredictable. Families move, trustees step down, and state laws change. A stand-alone Special Needs Trust is more portable and adaptable. If the special needs beneficiary moves to another state, it is often easier to change venue to comply with local rules than to try to adapt provisions locked into a decades-old revocable trust.

6. Privacy

When multiple beneficiaries are involved, co-beneficiaries may have a legal right to see trust documents and accountings. This can lead to unnecessary exposure of sensitive details about the special needs beneficiary’s care, distributions, or spending habits.

By carving out a stand-alone SNT, families can keep the disabled beneficiary’s trust private while limiting disclosures to what’s absolutely required by law.

7. Customized Remainder Planning

What happens when the special needs beneficiary passes away? With an embedded subtrust, the remainder distribution may be dictated by the original revocable trust. That may not reflect the family’s wishes years down the road.

A separate SNT can have its own remainder provisions. Parents often want leftover assets to pass to siblings, charities, or other loved ones, and a stand-alone document allows for those instructions to be crystal clear.

Side-by-Side Comparison (Subtrust vs. Stand Alone SNT)

Final Thoughts

If your estate plan already contains a special needs subtrust, that may be sufficient: especially if the amount involved is modest and the beneficiary’s needs are limited. But if the share is substantial, or if you want the greatest flexibility, privacy, and ease of administration, creating a stand-alone Special Needs Trust is often the better long-term solution.

At the end of the day, both tools are designed to accomplish the same core goal: protecting a loved one with disabilities without jeopardizing their public benefits. The decision comes down to how much control, clarity, and flexibility you want for the future.

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