A special needs trust serves an important purpose in providing for the needs of disabled persons. Often, a parent will create this type of trust for a child with special needs to ensure that the child has all his/her needs met after the parent's death. It may be funded via a life insurance policy or with other funds. Although special needs trusts are frequently set up for individuals whom the state might consider mentally incompetent, they can also be used for people who only have physical disabilities. This is because receiving an inheritance of more than $2000 can reduce or eliminate a disabled person's right to collect Social Security payments.

A family trust is one popular type of special needs trust. This type of account can be used to pay for a personal advocate or assistant for a person with a disability. It can also cover anything else the beneficiary wants or needs except housing, food, and clothing. Those three categories are considered "basic" needs and receiving these from a trust can disrupt Medicaid and SSI payments. To bypass this restriction, a trust may be used to purchase a house and rent it to the disabled individual. The trust can also pay for medical bills not covered by Medicaid and for attorney's fees if the person with special needs requires legal representation for any reason