Do You Want To Create A Special Needs Trust?
A special needs trust (sometimes called a supplemental needs trust) provides for the quality of life of individuals with disabilities while preserving their access to government benefits like Medicaid and Supplemental Security Income. These trusts are established for people whose disabilities prevent them from earning substantial income and who lack personal resources sufficient for their care. This umbrella term encompasses various trust structures, all sharing the common goal of supplementing public assistance programs.
To learn more about how to create and implement a special needs trust for your loved one, contact me at my Denver-based firm, The Law Offices of M. Kent Olsen, P.C..
What Is A Special Needs Trust?
The simple definition of special or supplemental needs is anything that constitutes nonsupport items. In other words, paying for anything the beneficiary wants for personal use that is not in the category of food or shelter (support expenses). When a trust is classified as a special needs trust, it must not cover food or shelter costs, or these payments could cause the trust to be counted as an available resource by the Social Security Administration or Colorado Department of Health Care Policy and Financing (HCPF).
The Social Security Procedures and Operations Manual System (POMS) defines support expenditures. Distinguishing between these costs can be difficult. For example, POMS classifies essential utilities like gas, water and electricity as core shelter costs, which the trust cannot pay. However, the trust may pay for non-basic utilities, such as telephone and cable service.
The trust cannot purchase food, but it may purchase food supplements. The trust may also provide nonconsumable items, such as toiletries, cleaning supplies and personal care items, provided the beneficiary uses them personally. If a beneficiary intends to give an item to another person, the trustee must not approve the purchase, even if the item is otherwise an acceptable trust expenditure.
As of March 9, 2005, there is no limit on the value of household goods as long as they are reasonably necessary for the person to live in his or her residence. Items like computers, furniture and appliances are permitted trust purchases. The trust can buy and maintain a vehicle for the beneficiary, including covering insurance costs. A motor vehicle is an exempt resource if used for the beneficiary. The trust may also cover other transportation costs. The trust can pay for travel costs, including expenses for a traveling companion. These travel costs may cover transportation, lodging and meals.
Types Of Special Needs Trusts In Colorado
In Colorado, choosing a specific legal structure can help you manage a family member’s assets without affecting their eligibility for Medicaid or Supplemental Security Income (SSI). The following overview outlines the primary Special Needs Trust (SNT) options available under state and federal law.
“Disability” or self-funded trusts (d4A Trusts)
Federal and state laws recognize these trusts (specifically C.R.S. § 25.5-6-103 in Colorado). These laws apply to trusts funded with the assets or money of a person with a disability. They do not apply to third-party trusts, which lawmakers categorize differently and fund with property belonging to someone other than the disabled individual.
Any person under age 65 may establish a disability trust. To protect Medicaid eligibility, the trust must comply with the “sole benefit” rule. The law mandates that the individual, their parent, grandparent, legal guardian or the court create the trust. Upon the death of the beneficiary, the trust must name the State as the primary remainder beneficiary. The State must receive reimbursement for all medical assistance expenditures it paid under Medicaid.
Third-party created trusts
A third-party trust exists when someone other than the beneficiary provides the funding. These trusts may provide benefits to a person with a disability, provided the trust meets special needs trust requirements. A grantor may establish a third-party trust as either a living (inter vivos) trust or a testamentary trust created by a will.
Living trusts
A living trust works well for parents who want to establish a trust for a child with a disability while preserving the child’s eligibility for public benefits. When other family members wish to leave assets through their wills without setting up separate special needs trusts, they can simply name the existing trust as the beneficiary in their estate plans. Parents have the flexibility to contribute to the trust during their lifetime or through their will.
Testamentary trusts
You can create a testamentary trust by drafting a will that incorporates a special needs trust provision for the child with the disability. This avoids the complication of the inter vivos trust but does not afford other relatives the vehicle to leave a devise to the disabled child without the relative having to do the same.
Understanding the distinctions between self-funded and third-party trust structures helps you establish appropriate long-term financial protection for a family member with a disability. If you have questions about which structure fits your situation, call my office to talk about your case.
Trustee Discretion And Administration
The trustee must have complete and unrestricted authority over distribution decisions in any supplemental needs trust. The beneficiary cannot have any legal right to demand or force distributions from the trust. While the trustee can communicate with the beneficiary about their needs and preferences, the trustee retains sole decision-making power.
The beneficiary must obtain prior approval from the trustee before any expenditure. The beneficiary must not create financial obligations and subsequently seek reimbursement from the trustee. The trustee should pay for all trust purchases directly from trust assets. The trustee must never provide cash directly to the beneficiary, as direct cash payments constitute support and may reduce or eliminate public benefit eligibility.
Colorado Trust Administration FAQ
Understanding the rules for Special Needs Trusts in Colorado helps you protect a beneficiary’s government benefits. These rules also help the trust work the way you intended. The following answers address common questions trustees face when managing these arrangements under the current 2026 regulations.
Does a Colorado Special Needs Trust need to be registered with the court?
Under the Colorado Uniform Trust Code (CUTC), per C.R.S. § 15-5-205, trust registration is optional. A trustee may choose to register to set a legal venue. You may also register if a beneficiary makes a formal request. Most “Self-Settled” (d4A) Special Needs Trusts created by court order include specific reporting rules. We help trustees follow the Duty to Inform and Report to qualified beneficiaries under C.R.S. § 15-5-813.
Trustees also have duties to the Colorado Department of Health Care Policy and Financing (HCPF). You must notify HCPF of trust distributions over $5,000. You must also report changes in trust management.
Can the trust pay for a home in Denver?
A trust can own a home for a beneficiary. Suppose the beneficiary lives there without paying their share of housing costs. In this case, the Social Security Administration (SSA) identifies this as In-kind Support and Maintenance (ISM).
As of 2026, the SSA only counts shelter costs as ISM. These costs include rent, mortgage and utilities. Food is no longer part of this calculation. This shelter ISM reduces the monthly SSI check. However, the reduction will not go above the “Presumed Maximum Value” (PMV). For 2026, the PMV is $351.33.
What happens if the Trustee mismanages the funds?
Colorado law holds trustees to a fiduciary standard. Problems arise if a trustee makes an improper distribution. For example, do not give cash directly to the beneficiary. Instead, pay vendors directly. Cash gifts count as unearned income.
A single mistake usually reduces the SSI payment for one month. However, repeated mismanagement can lead to a total loss of SSI. It may also lead to a review of Medicaid eligibility. I help trustees follow current spending limits and reporting rules to help you keep the beneficiary’s coverage active.
Trust administration rules change often. If you have questions about your specific reporting requirements, you can call my office to talk about your situation.
Contact Me For More Special Needs Trust Information
If the trustee is uncertain as to whether or not an expenditure constitutes a special or supplemental need, he or she should consult an attorney or other professional who is knowledgeable and specializes in special needs trusts. Expenditures that are prohibited by federal or state regulations, or other mishandling of the trust, can result in the beneficiary being disqualified from public benefits. Call me at 720-644-1605 or send an email to learn more about setting up a trust in Colorado.
