Can a Special Needs Trust Pay For Vacation?

When it comes to special needs trusts, a commonly asked question is: can a trust pay for a vacation? The answer is - possibly. As a background, a special needs trust is a legal document designed to assist individuals with disabilities. The trust serves as a tool for managing the funds of the disabled individuals without adversely impacting their eligibility for public benefits such as Medicaid and Supplemental Security Income (SSI).

Types of Special Needs Trusts

There are generally two types of special needs trusts - (i) a first-party special needs trust and a (ii) third-party special needs trust. A first-party special needs trust can be established with funds that belong to the disabled individual.

First-party special needs trusts are required to adhere to the “sole benefit of” rule regarding distributions for a trust beneficiary. Basically, this means that distributions from the trust can only be made for the benefit of the beneficiary. If other individuals receive an incidental benefit from the trust funds, those individuals are obligated to pay a pro rata share.

Some states impose additional requirements on first-party special needs trusts established via a court process. Typically, court-created special needs trusts require the reporting of every dollar and cent that is deposited into the trust and that is withdrawn from the trust.

Third-party special needs trusts are, by contrast, generally easier to manage since the “sole benefit of” rule does not apply. A third-party special needs trust is usually created by a relative or loved one of the disabled individual (e.g., a parent, sibling, etc.).

How a Special Needs Trust can be Used to Pay for a Vacation

Generally speaking, the funds maintained in a special needs trust can be used to cover expenses associated with a special needs beneficiary taking a vacation. For example, funds from a special needs trust can be used to cover travel expenses (e.g., airfare, transport to and from the airport), certain hotel accommodations (e.g., a handicap accessible room), and vacation activities (e.g., entertainment). However, there are notable rules and restrictions when trust funds are used in this context. For example, there are limitations associated with using trust funds to pay for food and shelter during a vacation. Rather, the trust beneficiary is expected to utilize their SSI benefits to pay for some of these expenses.

Another notable issue that often arises when special needs trust funds are used for a vacation is whether trust funds can be utilized to pay for a travel companion. As mentioned, when funds are used to cover the costs of a companion, it can cause friction in adhering to the “sole benefit of” rule applicable to first-party special needs trusts. Basically, this means you should not be relying on trust funds to pay for the entire family to go on a luxurious vacation.

For the payment of travel companion expenses to survive scrutiny, the trustee is required to show that the travel companion is necessary for the beneficiary’s safety and will provide caregiving services. A strategy you can use to substantiate the accommodation of a travel companion is to secure a written opinion of a medical professional expressly stating that the trust beneficiary requires assistance with daily tasks (e.g., dressing, eating, bathing, transport, and so forth). The trustee also needs to be prepared to provide documentation (e.g., receipts) to validate their expenses.

Other Expenses that can be Paid Using a Special Needs Trust

In addition to a vacation, you may be able to utilize funds from a special needs trust to help cover expenses associated with the beneficiary’s education, recreation, and medical care.  Other expenses that can be paid using a special needs trust generally include, but are not limited to, the following:

• Wheelchair and/or specially equipped vans
• Automobile and/or transportation services (Uber, Lyft, etc.)
• Therapy and/or rehabilitation services
• Home furnishings
• Recreational expenses (summer camp, sports equipment, etc.)
• Entertainment expenses (e.g., movies, social gatherings, etc.)
• Electronic equipment, appliances, and computers
• Legal expenses
• Insurance costs

Limitations on what a Special Needs Trust can Pay for

However, it is important to note that there are specific expenses that a special needs trust should not be used to cover, including:

• Rent or mortgage payments
• HOA fees
• Property taxes
• Utility costs
• Purchasing gift cards

Contact an Experienced Estate Planning Lawyer

As you can see, the rules governing when and how funds from a Special Needs Trust can be used for a vacation can get complex and challenging to navigate. Bespoke Estate Law is here to help. We are a respected law firm specializing in comprehensive estate planning, business law, contract law, and probate & trust administration services for clients in Myrtle Beach and the surrounding localities. Contact our Myrtle Beach estate planning law firm today to schedule a free consultation. During the consultation, you will get the chance to speak directly with an attorney and they will provide guidance on how we can assist you in protecting your assets, securing your legacy, and achieving your legal goals.