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.
What it looks like for one family
The same inheritance reaches a child with a disability as a disruption or as lasting support — depending on how it is held.
Left directly to the child
Benefits are put at risk
A relative leaves money outright to the Caldwells’ son, who relies on SSI and Medicaid. The gift pushes him over the resource limit and interrupts the benefits he depends on.
Left to a special needs trust
Benefits continue, and life gets better
The same gift goes into a special needs trust. It pays for things his benefits don’t cover — therapies, equipment, outings — without counting as his own resources.
Bob, Peggy, and the Caldwell family are a composite example used to show how the choice plays out — not a real client.