How special needs trusts work (with SSI/Medicaid rules)
A special needs trust holds assets for a person with disabilities so they can have financial support without losing eligibility for SSI, Medicaid, and other needs-based benefits. The trust — not the beneficiary — owns the assets, so the assets don’t count against benefit eligibility.
These are the questions that matter most when you’re planning for a loved one with disabilities.
What is a special needs trust?
A trust designed specifically to hold assets for a person with disabilities without disqualifying them from needs-based benefits. The trust supplements government benefits, not replaces them.
| What happens to the inheritance | Without an SNT | With an SNT |
|---|---|---|
| Trust owns the assets, not the beneficiary. | ||
| SSI and Medicaid eligibility generally preserved. | ||
| Trustee spends on supplemental needs. | ||
| Government benefits continue alongside. | ||
| The inheritance counts as the beneficiary’s asset. | ||
| SSI and Medicaid eligibility may be lost. | ||
| Benefits may have to be paid back. | ||
| The inheritance is spent down before benefits resume. |
How does an SNT preserve SSI and Medicaid eligibility?
SSI and Medicaid have strict asset and income limits. Because the trust — not the beneficiary — owns the assets, those assets don’t count toward the limits.
The trustee uses trust funds for supplemental needs: therapy, equipment, education, travel, and the quality-of-life items government benefits don’t cover. The structure is what preserves eligibility.
What’s the difference between a first-party and third-party SNT?
A third-party SNT is funded by someone else — usually parents. A first-party SNT is funded with the beneficiary’s own assets, like a settlement.
Third-party SNT
- Funded by parents, grandparents, others
- Common for inheritances or life insurance
- No Medicaid payback at the beneficiary’s death
- Remaining assets pass to whoever you choose
First-party SNT
- Funded with the beneficiary’s own assets
- Common for settlements or unexpected inheritances
- Medicaid payback required from what’s left at death
- Subject to additional federal rules
How does an ABLE account fit alongside an SNT?
An ABLE account is a tax-advantaged savings account for people with disabilities. It works alongside an SNT — not instead of it.
| What it’s designed for | SNT | ABLE account |
|---|---|---|
| Holds larger inheritances and gifts. | ||
| Designed for long-term holdings and investments. | ||
| Provides lifetime financial support. | ||
| Covers major life expenses. | ||
| Smaller, flexible day-to-day spending. | ||
| Holds the beneficiary’s own earnings up to limits. | ||
| Tax-free growth on contributions. | ||
| Direct control by the beneficiary in many cases. |
How Brent helps you
- Walks you through which SNT structure fits your family’s situation
- Drafts a third-party SNT to receive inheritances and gifts without disrupting benefits
- Coordinates an ABLE account alongside the SNT for day-to-day flexibility
- Names a trustee who understands the SSI and Medicaid rules and how to follow them
Do you need a special needs trust?
Five quick questions to help you see whether a special needs trust fits your situation.
60-second guided check. Bring the result to your consultation.