Special Needs Trusts: Protecting Your Benefits When You Receive Money

If you receive SSI or Medicaid, you have strict asset limits ($2,000 for SSI). If you get a lawsuit settlement, an inheritance, or even a well-meaning $10,000 gift from a relative, you could lose your benefits — even if you need them more than ever. A Special Needs Trust (SNT) is the legal tool that fixes this. What a Special Needs Trust does: - Holds assets for the benefit of a person with a disability WITHOUT counting against SSI/Medicaid asset limits - The trust pays for things SSI/Medicaid don't cover: medical equipment, transportation, education, recreation, personal care items, home modifications, electronics, travel - The beneficiary still receives their SSI and Medicaid benefits uninterrupted Two main types: First-Party (Self-Settled) SNT: - Funded with the beneficiary's OWN money (settlement, inheritance, savings) - Must be established by a parent, grandparent, guardian, or court (not by the beneficiary themselves) - On the beneficiary's death, Medicaid must be reimbursed for benefits paid during their lifetime (payback provision) - Used when the person with a disability received the money directly Third-Party SNT: - Funded with someone ELSE's money (parents, grandparents, others) - No Medicaid payback requirement — remaining funds go to whoever the trust specifies - More flexible, better for estate planning by parents of children with disabilities - Can be set up as a standalone trust or within a will Pooled Trusts: - Run by nonprofit organizations that pool and manage funds for multiple beneficiaries - Lower cost than individual trusts (setup may be $1,000-$2,000 vs. $3,000-$5,000 for individual) - Good option if you don't have a family member to serve as trustee or can't afford individual trust setup - Medicaid payback applies (like first-party) - Find pooled trusts through the National Plan Alliance (nationalplanalliance.org) When you need one: - Receiving a personal injury or medical malpractice settlement - Inheriting money from a family member - Getting a large retroactive SSDI/SSI payment - Divorce settlement - ANY time you're on means-tested benefits and receiving more than $2,000 How to set one up: 1. Find an attorney who specializes in special needs planning (not a general estate attorney) — the Academy of Special Needs Planners (specialneedsanswers.com) has a directory 2. The attorney drafts the trust according to your state's requirements and federal law (42 USC 1396p(d)(4)) 3. Fund the trust with the settlement/inheritance 4. A trustee (you, a family member, or a professional trustee) manages distributions for the beneficiary's supplemental needs 5. Distributions must be for the beneficiary's benefit only — not for things SSI/Medicaid already cover Important: Do NOT deposit settlement money into your personal account before setting up the trust — if it hits your account, it counts as an asset and could terminate benefits. Have your attorney set up the trust FIRST, then direct the settlement to the trust. Canada: While Canada doesn't have the same SSI/Medicaid asset limits, provincial disability programs (ODSP, AISH, etc.) DO have asset limits. A Henson Trust (named after the court case) serves a similar purpose — it holds assets for a person with a disability without affecting provincial disability benefits. Consult a Canadian estate attorney familiar with Henson Trusts.