Colorado Special Needs Planning Attorney

In Colorado, there are generally three types of Special Needs Trusts (SNTs): first-party, third-party, and pooled trusts. A first-party trust holds assets belonging to the individual with disabilities, often from an inheritance or settlement, and must comply with Medicaid payback rules. A third-party trust is funded by family or others for the person’s benefit, without triggering payback requirements. Pooled trusts, managed by nonprofit organizations, combine multiple beneficiaries’ assets for investment purposes while maintaining individual accounts.

Colorado Revised Statutes § 15-14-412.8 formally recognizes disability trusts (also known as self-settled special needs trusts) for beneficiaries with disabilities, allowing them to preserve assets without losing eligibility for public benefits like Medicaid and Supplemental Security Income (SSI). This state law aligns with federal regulations under 42 U.S.C. § 1396p(d)(4)(A) and (C). The statute outlines how the trust must be established, who may create it, and how funds must be used to enhance, not replace, government benefits, ensuring compliance with court requirement.

Colorado residents with disabilities often rely on public benefits such as Medicaid, Supplemental Security Income (SSI), and housing or food assistance programs. These benefits are typically means-tested, meaning eligibility depends on limited income and resources, especially for a member of the family with special needs. Special Needs Trusts play a crucial role in preserving these benefits by sheltering assets so they do not count against eligibility limits. Other programs that can be affected include Social Security Disability Insurance (SSDI), the Colorado Medicaid Waiver programs, and local services administered by the Colorado Department of Health Care Policy and Financing.

Yes. Colorado offers the ColoradoABLE program, which allows individuals with qualifying disabilities to save and invest money in a tax-advantaged account without losing eligibility for public benefits like Medicaid and SSI. Funds can be used for qualified disability expenses such as housing, education, and healthcare. An ABLE account can complement a Special Needs Trust, offering more flexibility and direct control to the beneficiary. However, annual contribution limits apply, and the account must be managed carefully to avoid affecting benefit eligibility.

If the beneficiary receives means-tested benefits such as SSI or Medicaid, the trust cannot directly pay for expenses that count as “in-kind support and maintenance.” This includes food, rent, and certain housing costs, such as utilities or property taxes. Paying these directly could reduce SSI payments or risk disqualification of benefits. Instead, the trust can pay for supplemental items that improve quality of life—such as medical equipment, education, transportation, personal care, entertainment, and travel.

When a beneficiary of a Special Needs Trust passes away, the next steps depend on the type of trust. For first-party trusts, federal and Colorado law require that remaining funds first reimburse the state Medicaid program for benefits provided during the beneficiary’s lifetime. Any remaining balance after Medicaid recovery may be distributed to designated heirs or charities. Third-party trusts, however, are not subject to Medicaid payback and can distribute remaining assets according to the grantor’s instructions.

Special needs planning should begin as early as possible—ideally when a disability is diagnosed or when family members begin long-term financial planning. Early planning allows families to effectively coordinate estate plans, determine eligibility for benefits, and ensure appropriate funding mechanisms, such as trusts and insurance, are in place. Delaying planning can lead to the loss of benefits, family disputes, or mismanaged inheritances. In Colorado, attorneys and financial advisors specializing in special needs planning can help design a sustainable plan tailored to the individual’s current and future needs.

Families in Colorado can access help from attorneys experienced in elder law and special needs trusts, financial planners, nonprofit advocacy organizations, and state agencies. The Colorado Bar Association, The Arc of Colorado, and the Colorado Department of Health Care Policy and Financing are key resources for education and referrals. Many law firms also specialize in creating Special Needs Trusts and coordinating public benefits. Families should seek professionals whose mission is familiar with both federal and Colorado-specific regulations to ensure compliance.

Housing is a critical component of special needs planning in Colorado. Families must balance the beneficiary’s need for stable, safe housing with eligibility for programs like SSI and Medicaid. Because direct payment for rent or housing costs can reduce SSI benefits, planners often structure trust disbursements carefully or use ABLE accounts to pay certain expenses. Options may include supported living arrangements, group homes, or independent housing with service supports.

Tax considerations in special needs planning include trust income taxation, gift tax implications, and potential estate tax exposure. Third-party Special Needs Trusts are typically taxed as separate entities, while first-party trusts may attribute income to the beneficiary. Families must also account for annual reporting and ensure compliance with IRS rules for distributions and deductions. Contributions to ABLE accounts can qualify for state income tax deductions in Colorado.