Estate Planning · Haute Lawyer Network
What Is a Special Needs Trust?
Last reviewed: June 2026
A special needs trust — also called a supplemental needs trust — is a legal arrangement that holds assets for the benefit of a person with a disability without disqualifying them from means-tested government benefits like Medicaid and Supplemental Security Income (SSI).
The fundamental problem that special needs trusts solve: if a person receiving Medicaid or SSI inherits money directly, that inheritance typically disqualifies them from benefits until it is spent down to the asset limit. A special needs trust holds the assets outside of the beneficiary's personal ownership, allowing them to continue receiving government benefits while the trust supplements their care.
What a Special Needs Trust Can Pay For
The trust can pay for goods and services that government benefits do not cover. Appropriate expenditures include education and tuition, recreation and entertainment, personal care items beyond what Medicaid covers, technology and communication devices, travel and transportation, cultural and social experiences, legal and advocacy services, and supplemental therapy or medical care. The trust generally should not pay for food and shelter directly, as this can reduce SSI payments.
Types of Special Needs Trusts
Third-party special needs trust — funded by parents, grandparents, or other family members. Assets remaining in the trust at the beneficiary's death pass to other family members — not to the government.
First-party special needs trust (d4A trust) — funded with the disabled person's own assets — often from a personal injury settlement. Assets remaining at the beneficiary's death are subject to Medicaid payback.
Pooled trust — administered by a non-profit organization that pools trust assets for investment while maintaining separate accounting for each beneficiary.
Frequently Asked Questions
Who should serve as trustee of a special needs trust?
The trustee must understand both the trust's terms and the complex rules governing government benefits. Options include a knowledgeable family member, a professional trustee with special needs trust experience, or a corporate trustee.
Can a special needs trust be set up in a will?
Yes. A testamentary special needs trust is created within a will and comes into existence at death. Parents often use this to plan for a disabled child.
What happens to the trust when the beneficiary dies?
For third-party trusts, remaining assets pass to whoever the trust document names — typically other family members. For first-party trusts, Medicaid must be reimbursed for benefits paid before any distribution.
What if a family member leaves money directly to a disabled person?
The direct inheritance will likely disqualify the person from benefits until spent down to the asset limit. This is why families with disabled members should coordinate estate plans to ensure inheritances flow through a special needs trust.
Can a special needs trust pay for housing?
Yes, in certain ways — but payments for food and shelter may reduce SSI payments. Planning how housing is provided requires careful coordination with a benefits-familiar attorney.
Related Questions
Are you an Estate Planning attorney?
Join Haute Lawyer Network and have your profile featured alongside these answers.
Apply for Membership →This information is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship.