Special Needs Trust in South Dakota

How a Special Needs Trust Works

Three parties make up every special needs trust. The grantor creates and funds the trust. The trustee manages the assets and makes distribution decisions according to the trust’s terms. The beneficiary is the person with disabilities whose needs the trust serves. The trustee role demands ongoing attention: benefit rules change, investment decisions must meet legal standards, and each distribution must be evaluated against SSI and Medicaid guidelines.

What the Trust Can Pay For

Trust distributions typically cover what government programs don’t: therapies, education, personal items, recreation, transportation, and assistive technology. The trust generally doesn’t pay for services Medicaid already covers, such as primary medical care or nursing home room and board, because those payments can reduce benefit amounts or trigger eligibility reviews.

One recent federal policy change is worth noting. Effective September 30, 2024, the Social Security Administration updated its in-kind support and maintenance (ISM) rules to remove food from that calculation. A trust may now be able to pay for groceries without reducing the beneficiary’s SSI benefit. Because federal policy continues to evolve, working with an attorney who tracks these changes is important for keeping distribution guidelines current.

Under South Dakota law (SDCL Title 55), distribution beneficiaries generally have the right to receive a trustee’s accounting of how trust assets are managed and spent, though those rights may be modified by the trust document or applicable statute.

Funding a Special Needs Trust in South Dakota

A trust that is properly drafted but never funded protects nothing. Assets must be formally transferred into the trust to activate its protections. We review which assets should flow into the trust during the grantor’s lifetime and which should be directed there at death, including life insurance proceeds and payable-on-death designations.

Life insurance is a practical funding vehicle for many families. Naming the special needs trust as the policy beneficiary, rather than the individual directly, can keep the proceeds out of the beneficiary’s countable assets at the grantor’s death. We also help coordinate other family members’ estate documents so that well-intended gifts don’t pass directly to the beneficiary and disrupt eligibility. Relatives who want to leave something for a person with disabilities should direct those funds into the trust, not to the individual.

When trust assets include agricultural land, South Dakota’s anti-corporate farming laws require that the trust qualify as a family farm exception, meaning a family member must reside on or actively operate the farm. Ranch and farm families need this addressed at the drafting stage, not discovered later during administration.

Our Planning Process for Special Needs Trusts

We follow the Forward Development Process (FDP), a structured approach that moves a family from initial consultation through signed, coordinated documents without surprises at any step. Here’s how that process works for a special needs trust engagement:

• No-obligation consultation: We review the family’s situation, the beneficiary’s current benefit programs, and any existing estate documents before any drafting begins
• Trust design and related instruments: We prepare the trust document along with any updated wills, powers of attorney, and beneficiary designation changes needed to direct assets into the trust correctly
• Plain-language review: We walk clients through each provision before signing so nothing goes unexplained
• Funding coordination: We confirm which assets have been transferred or designated to fund the trust and identify any remaining steps
• Ongoing maintenance: The Client Maintenance Program covers routine amendments for a small annual fee, and we schedule review meetings every two to three years

Benefit rules at both the federal and state level change over time, and a trust drafted years ago may need amendment to reflect current SSI or Medicaid standards. When a cost-effective solution involves steps handled under another state’s law, we’ll identify that and recommend the appropriate path rather than forcing a less efficient structure.