Skip to content

Special Needs Trusts

If the person you're caring for receives SSI or Medicaid, their eligibility depends on having limited assets — typically under $2,000. A special needs trust (SNT) holds money or property for them without counting toward that limit, so they can keep their benefits while still having resources for things those benefits don't cover.

This is one of the most important financial planning tools for caregivers of people with disabilities. It's also one of the least understood.

Why this matters

Without a trust, any money left to a person with a disability — through inheritance, a legal settlement, or a gift — can disqualify them from SSI and Medicaid. A $5,000 inheritance could cost them $50,000+ in annual benefits. A special needs trust prevents that.

The trust pays for things that government benefits don't cover:

  • Personal care items, clothing, electronics
  • Vacations, entertainment, recreation
  • Education and training costs
  • Vehicle purchase or modification
  • Home furnishings and modifications
  • Supplemental therapies not covered by insurance

The trust cannot pay for food or shelter directly (this reduces SSI by up to 1/3 under the "in-kind support and maintenance" rule), though this rule has exceptions and workarounds that a qualified attorney can navigate.

Types of special needs trusts

First-party (self-settled) SNT

  • Funded with the disabled person's own money (from an inheritance, lawsuit settlement, or savings)
  • Must be established before age 65
  • Must be established by a parent, grandparent, legal guardian, or court — not the disabled person themselves
  • Medicaid payback required: when the beneficiary dies, remaining funds repay Medicaid for services provided during their lifetime
  • Also called a "d(4)(A) trust" after the statute

Third-party SNT

  • Funded with someone else's money (parents, grandparents, other family)
  • No age restriction
  • No Medicaid payback — remaining funds go to whoever the trust names as remainder beneficiary
  • Can be created in a will (testamentary trust) or during the grantor's lifetime (inter vivos trust)
  • This is the most common type for estate planning

Pooled trust

  • Managed by a nonprofit organization that pools funds from multiple beneficiaries for investment
  • Each beneficiary has a separate account within the pool
  • Available to people of any age (including over 65, unlike first-party SNTs)
  • Lower setup costs than individual trusts
  • Nonprofit retains remainder funds for its charitable mission after beneficiary's death
  • Good option when the amount is too small to justify a standalone trust

What it costs

  • Attorney fees: $2,000-5,000 for a standalone SNT (varies by state and complexity)
  • Pooled trust enrollment: $500-1,500 setup fee + annual administrative fees (typically 1-2% of assets)
  • Trustee fees: if you use a professional trustee (bank, trust company), expect 1-3% of trust assets annually
  • Family member as trustee: no fee, but significant responsibility and potential liability

How to get started

  1. Determine which type you need — first-party (their money) vs third-party (your money) vs pooled
  2. Find a special needs planning attorney — not a general estate attorney. The Academy of Special Needs Planners (specialneedsplanners.com) maintains a directory. Your state's Protection & Advocacy organization can also refer you.
  3. Decide on a trustee — family member, professional trustee, or pooled trust organization. Consider: who will manage this after you can no longer do it?
  4. Fund the trust — this can be done at creation or over time. Life insurance policies can be structured to fund a trust upon death.
  5. Review every 3-5 years — laws change, circumstances change, benefit program rules change

Common mistakes

  • Not having one at all — the most common mistake. Even small amounts can disqualify someone from benefits.
  • Naming the disabled person directly in a will — use the trust as the beneficiary instead.
  • Using the trust for food/shelter without understanding the SSI reduction — work with an attorney on compliant distributions.
  • Choosing the wrong trustee — a family member who doesn't understand trust administration rules can inadvertently disqualify the beneficiary.

ABLE accounts as a complement

For smaller amounts and everyday expenses, an ABLE account may be simpler and cheaper than a trust. Many families use both — an ABLE account for day-to-day supplemental expenses and a trust for larger assets and long-term planning.

If you need help now

Academy of Special Needs Planners: specialneedsplanners.com — find an attorney in your state.

**Eldercare Locator**: **1-800-677-1116** — can connect you to legal aid and benefits counseling.