Planning for a loved one with disabilities requires protecting their government benefits while providing financial support. Special needs trusts (SNTs) are essential legal tools that accomplish both goals. Without proper planning, an inheritance or settlement could disqualify your loved one from critical benefits they depend on for healthcare and income support.
This guide explains everything Colorado families need to know about special needs trusts and planning for disabled beneficiaries.
What Is a Special Needs Trust?
A special needs trust holds assets for someone with disabilities without disqualifying them from critical government benefits like Medicaid and Supplemental Security Income (SSI). Under Colorado law (C.R.S. § 15-16-913), these trusts can pay for supplemental needs while preserving benefit eligibility.
Why Special Needs Trusts Matter
Government benefit programs have strict financial limits in Colorado:
SSI (2025):
- Resource limit: $2,000 for individuals
- Income limit: $967/month
- Assets above these limits result in loss of benefits
Colorado Medicaid:
- Asset limit: $2,000 for single individuals
- Income limit: $2,901/month for long-term care
- Covers healthcare, therapies, and personal care services
A special needs trust (SNT) is a legal tool designed to hold assets for someone with disabilities without disqualifying them from means-tested government benefits like Medicaid and SSI. Under Colorado law, these trusts can pay for supplemental needs while preserving benefit eligibility.
Without a special needs trust, a well-meaning inheritance or personal injury settlement could actually harm your loved one by making them ineligible for the benefits they depend on.
Types of Special Needs Trusts in Colorado
There are three main types of special needs trusts in Colorado, each designed for different situations.
First-Party (Self-Funded) Special Needs Trusts
This type of trust is funded with the beneficiary’s own money from personal injury settlements, inheritances, or work earnings.
Colorado Requirements (C.R.S. § 15-14-412.8):
- Beneficiary must be under age 65
- Can be established by parent, grandparent, guardian, court, or the individual themselves
- Must be irrevocable
- Must include Medicaid payback provision—Colorado Medicaid gets reimbursed after death
Third-Party Special Needs Trusts
These trusts are funded by family members (parents, grandparents) for someone with disabilities.
Key Features:
- No age limit
- No Medicaid payback requirement
- You decide who gets remaining assets after beneficiary’s death
- Can be created during life or through your will
Pooled Special Needs Trusts
This type of trust works best for smaller amounts of assets (under $100,000) or when you need quick setup and professional management.
Colorado’s pooled trust is administered by the Colorado Fund for People with Disabilities (CFPD). Benefits include lower setup costs, professional nonprofit administration, no age limit, and faster establishment than individual trusts.
What Special Needs Trusts Can and Cannot Pay For
Understanding what the trust can and cannot pay for is critical to preserving your loved one’s benefits.
Permitted Expenses
Special needs trusts pay for supplemental needs beyond what government benefits provide:
- Medical & Therapeutic: Medical care not covered by Medicaid, dental and vision care, therapy (physical, occupational, speech), medical equipment, over-the-counter medications
- Education & Personal Development: Tuition and educational expenses, books and computers, tutoring and vocational training
- Quality of Life: Entertainment (movies, concerts, sports), hobbies and recreation, vacations and travel, electronic devices and internet service
- Transportation: Vehicle purchase and maintenance, insurance and gas, public transportation
- Professional Services: Attorney and accountant fees, care manager fees, trustee fees
Restricted Expenses
The trust generally cannot pay directly for:
- Food (reduces SSI benefits)
- Shelter (rent, mortgage, utilities paid directly to beneficiary reduces SSI)
- Cash given directly to the beneficiary
Critical rule: Distributions must go directly to service providers, not to the beneficiary, to avoid jeopardizing benefits.
Understanding Colorado Medicaid and SSI Rules
Supplemental Security Income (SSI)
SSI is a federal program providing monthly income to disabled individuals with limited resources.
2025 Eligibility Requirements:
- Resource limit: $2,000 for individuals, $3,000 for couples
- Maximum monthly benefit: $967 for individuals
- Income affects benefit amount
- Must have qualifying disability
What Counts as a Resource: Cash and bank accounts, stocks and bonds, real estate (other than primary residence), vehicles (with some exceptions)
What Doesn’t Count: Primary residence (with some limitations), one vehicle (meeting certain criteria), personal belongings and household goods, properly structured special needs trust, ABLE account balance up to $100,000
Colorado Medicaid Programs
Medicaid provides healthcare coverage, including long-term care services that SSI alone doesn’t cover.
Colorado Asset Limits (2025):
- Regular Medicaid: $2,000 for single individuals
- Married couples: $3,000 if both applying
- Community spouse can retain up to $157,920
Colorado Income Limits:
- Long-term care Medicaid: $2,901/month (300% of SSI rate)
- Personal needs allowance: $108.73/month
What Colorado Medicaid Covers: Hospital and physician services, prescription medications, home and community-based services (HCBS), nursing home care, personal care services, therapies and medical equipment
ABLE Accounts: A Complementary Planning Tool
In addition to special needs trusts, Colorado offers another valuable tool: ABLE accounts.
Colorado ABLE accounts are tax-advantaged savings accounts that complement special needs trusts. These accounts were created under federal law and are administered at the state level by CollegeInvest.
ABLE Account Basics
Eligibility:
- Disability occurred before age 26
- Must meet Social Security disability criteria
Contribution Limits (2025):
- $18,000 annual limit (general)
- Working beneficiaries can contribute additional amounts
- $500,000 lifetime maximum in Colorado
SSI Protection:
- Balances up to $100,000 don’t count toward SSI’s $2,000 limit
- Amounts over $100,000 may suspend SSI
- No Medicaid payback required in Colorado (major advantage)
What ABLE Accounts Can Pay For
Unlike special needs trusts, ABLE accounts have broader spending flexibility. They can pay for housing (rent, mortgage, utilities), education, employment support, healthcare, financial management, legal fees, basic living expenses, transportation, and personal support services.
Importantly, ABLE accounts can pay for housing and food expenses without reducing SSI benefits.
ABLE Accounts vs. Special Needs Trusts
Many families use both tools together. ABLE accounts have a $500,000 lifetime limit while special needs trusts have no limit. ABLE accounts protect up to $100,000 for SSI purposes while special needs trusts protect unlimited amounts. ABLE accounts require disability before age 26, but third-party special needs trusts have no age requirement. ABLE accounts can pay for housing while special needs trusts generally cannot. Setup costs are $25-50 for ABLE accounts versus $2,500-5,000 for special needs trusts.
Best strategy: Use ABLE accounts for day-to-day expenses and smaller amounts; use special needs trusts for larger inheritances and long-term protection.
Colorado ABLE Tax Benefits
Colorado offers a state income tax deduction for contributions to Colorado ABLE accounts through 2030, making them even more attractive for Colorado residents.
What Is A Special Needs Trust Trustee?
The trustee manages the trust and makes distribution decisions. This is one of your most important choices.
Trustee Responsibilities
Colorado’s Uniform Trust Code (C.R.S. §§ 15-5-801) imposes significant duties on trustees:
- Manage investments prudently (C.R.S. §§ 15-1.1-101 et seq.)
- Understand government benefit rules
- Make distributions that don’t jeopardize eligibility
- Maintain detailed records
- File trust tax returns
- Coordinate with benefit agencies
Who Can Be A Trustee For A Colorado Special Needs Trust?
When it comes to choosing a trustee, you have several options.
- Family Member: Knows beneficiary personally, no fees, but may lack technical knowledge
- Professional Trustee: Expertise with special needs trusts, continuity of service, fees typically 1-2% of assets annually
- Co-Trustees: Best of both worlds—family member plus professional combines personal knowledge with expertise
Guardianship Considerations
Many individuals needing special needs trusts also require guardianship. Under Colorado law (C.R.S. §§ 15-14-301 through 15-14-318), a guardian makes personal decisions (medical care, living arrangements) while a conservator manages finances.
It’s important to remember that parents’ authority ends at age 18. If you need to continue to make decisions on behalf of your child after the age of 18, you must petition for guardianship.
Some alternatives to guardianship include powers of attorney, supported decision-making, representative payee for Social Security, and healthcare directives.
Integrating Special Needs Trusts Into Your Estate Plan
A special needs trust doesn’t exist in isolation—it should be part of a comprehensive estate plan.
Update Your Will or Trust
Explicitly state that your child’s inheritance goes to their special needs trust—never directly to them. This is the single most important step.
Review All Beneficiary Designations
- Life insurance: Name the SNT, not the individual
- Retirement accounts (401(k), IRA): Consider naming the trust (consult with your attorney about tax implications)
- Payable-on-death accounts: Name the trust
Inform Family Members
Send letters to grandparents, aunts, uncles, and friends asking them to name the SNT (not your loved one directly) in their estate plans. Well-meaning relatives who leave money directly to your loved one can inadvertently disqualify them from benefits.
Create a Letter of Intent
Document your loved one’s medical history, daily routines, preferences, important relationships, care instructions, and your hopes for their future. While not legally binding, this letter guides trustees and caregivers after you’re gone.
Common Mistakes to Avoid
Leaving Assets Directly to the Disabled Person
This is the most common and most devastating mistake. An inheritance can disqualify someone from benefits until the money is completely spent.
Solution: Always leave assets to the SNT, never directly to the individual.
Not Updating Beneficiary Designations
Your will might be perfect, but if your life insurance policy names your child directly, the trust never gets funded.
Solution: Review all beneficiary designations and update them to name the SNT.
Not Informing Family Members
Grandparents may unknowingly leave assets directly to your loved one, causing them to lose benefits.
Solution: Provide family with SNT information so they can name it in their plans.
Using Generic Forms
Special needs trusts require precise language to comply with Colorado and federal law. Online forms or DIY documents often fail to include critical provisions.
Solution: Work with an experienced special needs planning attorney.
Creating But Not Funding the Trust
An unfunded trust provides no protection. The trust must actually receive assets to be effective.
Solution: Fund the trust or ensure your estate planning documents direct assets to it.
What Steps Should I Take When Creating A Special Needs Trust?
Step 1: Gather Information
Collect details about your loved one’s disability, current benefits, medical needs, and your assets and beneficiary designations.
Step 2: Consult an Experienced Attorney
Find a Colorado attorney with a focus on special needs planning who understands government benefits. Look for an attorney who:
- Focuses on special needs trusts and estate planning
- Has experience with SSI and Medicaid rules
- Understands Colorado law
- Takes time to understand your family
Step 3: Consider All Family Members
Address the needs of your child with disabilities, other children, your spouse, and succession planning (who will care for your child when you can’t).
Step 4: Create the Necessary Documents
Special needs trust, will or revocable trust, beneficiary designations, letter of intent, powers of attorney.
Step 5: Review Regularly
Update your plan every 3-5 years and after major life or benefit program changes.
Common Questions About Special Needs Trust Planning
Can my child receive an inheritance and still keep their benefits?
Only if the inheritance goes into a properly drafted special needs trust. Direct inheritance disqualifies them from benefits until the assets are spent down below $2,000.
Who should be the trustee?
The best trustee depends on your situation. Options include family members, professional trustees, or co-trustees combining both. The trustee must understand government benefits and be willing to serve for potentially many decades.
Do I need a lawyer to create a special needs trust?
Yes. Special needs trusts must comply with complex federal and Colorado law. Mistakes can result in loss of benefits. This is not an area for DIY solutions or online forms.
What happens to the trust money when my loved one dies?
For first-party trusts funded with the beneficiary’s own money, Colorado Medicaid must be repaid first. For third-party trusts funded by family, you decide who receives the remaining assets—often siblings or other family members.
How much does it cost to set up and maintain a special needs trust?
Setup costs typically range from $2,500-$5,000 for attorney fees. Ongoing costs depend on whether you use a family trustee (minimal costs) or professional trustee (typically 1-2% of assets annually). The protection provided is worth far more than the cost.
Why Is Special Needs Planning So Important?
Planning for a loved one with special needs is one of the most important things you can do. With proper planning, you can:
- Protect critical government benefits
- Provide for your loved one’s lifetime needs
- Ensure continuity of care after you’re gone
- Give your family peace of mind
- Honor your loved one’s autonomy and dignity
Without planning, benefits can be lost, assets depleted, and quality of life diminished. The time to plan is now.
Contact Anzen Legal Group
At Anzen Legal Group, we understand the complexities of special needs planning. We’ve helped numerous Colorado families create comprehensive plans that protect loved ones with disabilities while preserving benefits.
Your loved one’s future is too important to leave to chance. Let us help you create a plan that provides security and peace of mind.
Call our office at 970-893-8857 to schedule a consultation with an experienced Fort Collins special needs planning lawyer.
