Educational guide — not legal advice. Special needs planning has serious consequences for government benefit eligibility. Always work with a qualified special needs attorney before creating an SNT.
The problem this solves
People with significant disabilities often qualify for means-tested government benefits that are essential to their long-term care:
- Supplemental Security Income (SSI) — monthly cash benefit for disabled individuals with limited resources
- Medicaid — health coverage including long-term care, group home, and many therapies
- HUD housing assistance — subsidized housing for low-income individuals
- SNAP (food stamps) and other safety-net programs
- Special education and developmental services in many states
To qualify for these programs, the recipient generally can’t have more than about $2,000 in countable assets (the SSI resource limit; Medicaid limits vary by state but are usually similar).
The problem: if a disabled person receives an inheritance, life insurance payout, court settlement, or even just well-meaning gifts from family, those assets typically disqualify them from benefits. A $50,000 inheritance from a grandparent can end up costing far more than $50,000 in lost benefits and care.
A special needs trust solves this. Assets in a properly structured SNT don’t count as the disabled person’s resources for benefit eligibility purposes, but the trustee can use them to improve the disabled person’s quality of life.
How an SNT actually works
An SNT is an irrevocable trust created for the benefit of a specific person with disabilities. Its key features:
The disabled person is the beneficiary, not the owner
Assets in the trust are owned by the trust, not by the disabled person. They have no control over distributions — the trustee decides what to spend money on, based on the trust’s instructions.
The trustee uses funds for the beneficiary’s benefit
The trustee can pay for almost anything that improves the beneficiary’s life without directly providing food or shelter (which would reduce SSI). Common allowable expenses:
- Therapies not covered by Medicaid (speech therapy, occupational therapy, equine therapy)
- Educational expenses (tutoring, private school, college)
- Medical and dental care beyond what Medicaid covers
- Special equipment (wheelchair adaptations, sensory equipment, communication devices)
- Recreation and entertainment (sports leagues, art classes, music lessons, travel)
- Vehicle purchases and modifications
- Furniture, computers, electronics
- Advocacy services
- Caregivers beyond what Medicaid covers
- Burial and funeral expenses
The trustee should generally not provide cash directly to the beneficiary, and should not pay directly for food or shelter (which can reduce SSI under the in-kind support and maintenance (ISM) rules).
Government benefits continue
Because the disabled person doesn’t own the trust assets, they continue to qualify for SSI, Medicaid, and other means-tested benefits. The trust provides supplemental support — things government programs don’t cover — without disrupting eligibility for the things they do.
The three main types of SNTs
1. Third-party SNT (the most common and flexible)
Created and funded by someone other than the disabled person — typically parents, grandparents, or other relatives. The assets in the trust are the funder’s gift; they never belonged to the disabled beneficiary.
Key features:
- No Medicaid payback at the beneficiary’s death (assets can pass to other family members)
- Can be funded during the funder’s life or after death (via will or beneficiary designation)
- The most flexible and recommended option when family members want to leave money for a disabled relative
For families with a disabled child, this is typically the right tool. Set it up while everyone is alive, and direct any inheritance or life insurance proceeds intended for the disabled person into the SNT.
2. First-party SNT (also called a “self-settled” or “OBRA 93” SNT)
Created with the disabled person’s own assets — typically because they received a personal injury settlement, an inheritance that came directly to them, or some other windfall.
Key requirements:
- The beneficiary must be under age 65 when the trust is created
- The trust must include a Medicaid payback provision — at the beneficiary’s death, the state Medicaid agency must be reimbursed for benefits paid during the beneficiary’s lifetime, up to the amount in the trust
- Anything remaining after Medicaid payback passes per the trust’s terms
Used when assets that belong to the disabled person need to be sheltered. Less flexible than third-party SNTs but valuable when needed.
3. Pooled SNT (managed by a nonprofit)
A trust managed by a nonprofit organization that pools resources from many disabled beneficiaries for investment purposes, while maintaining a separate sub-account for each beneficiary.
Key features:
- Lower setup and administration costs than individual trusts
- Professional trustee management without the cost of a private trustee
- Often the only practical option for smaller amounts ($50,000 or less)
- Either first-party (with Medicaid payback) or third-party (without payback)
- Administered by organizations like The Arc, PLAN, or state-specific nonprofits
Good fit when assets are modest or there’s no obvious family member to serve as trustee.
Choosing the right SNT
For most families planning ahead, a third-party SNT is the right choice:
- Family creates the trust while the disabled person is alive
- Parents and other relatives direct any inheritance, life insurance, or gifts intended for the disabled person into the trust
- No Medicaid payback (assets can eventually pass to other family members)
For a disabled person who has already received assets in their own name (a settlement, an inheritance that wasn’t directed to a trust), a first-party SNT can shelter those assets, with the Medicaid payback trade-off.
For small amounts ($50,000 or less) or families without a suitable trustee, a pooled SNT through a reputable nonprofit is often the practical choice.
What it costs
Realistic ranges:
- Setup with attorney: $2,000-$6,000+ for a basic third-party SNT
- Pooled SNT joining fee: $500-$2,500 typically
- Ongoing trustee fees (if professional trustee): typically 1-2% of trust assets annually, or hourly for non-professional trustees
- Annual tax preparation: $500-$2,500 depending on complexity
For families considering whether to set up an SNT, the answer is usually yes if:
- The disabled beneficiary qualifies for or might qualify for means-tested government benefits
- There’s any meaningful chance of inheritance, gifts, or other assets reaching them
- The family wants to leave them something without disrupting benefits
The cost of setting up an SNT is small compared to the cost of lost benefits and care.
The trustee role
The trustee of an SNT has significant responsibility:
- Investment management — handling the trust’s assets prudently
- Distribution decisions — deciding what to spend money on for the beneficiary
- Benefit coordination — making sure distributions don’t disrupt government benefits
- Tax compliance — filing trust tax returns (Form 1041) annually
- Recordkeeping — maintaining records of all transactions and decisions
- Beneficiary relationship — understanding what improves the beneficiary’s life
Common trustee options:
Family trustee
A trusted family member (sibling, aunt/uncle, adult niece/nephew). Advantages: deep knowledge of the beneficiary, motivated by love, no fees. Disadvantages: may not understand the benefit eligibility rules, may not outlive the beneficiary, may have their own family obligations that conflict.
Professional trustee
A bank trust department, registered fiduciary, or attorney serving as trustee. Advantages: experienced, won’t quit or die, follows the rules. Disadvantages: fees (1-2% of assets annually), less personal connection.
Co-trustees
A family member and a professional trustee serving together. Advantages: combines personal knowledge and professional expertise. Disadvantages: more complex, slightly higher cost, requires the parties to work together.
Pooled trust trustee
The nonprofit administering the pooled trust serves as trustee. Advantages: experienced specifically in special needs, modest cost. Disadvantages: less personalized; the trust may have rules that constrain spending.
For most families, co-trustees (a family member plus a professional) often provide the best balance.
What an SNT can and can’t pay for
A non-exhaustive reference:
Generally safe to pay for from an SNT
- Therapies (PT, OT, speech, behavioral, sensory)
- Educational expenses (school, tutoring, training)
- Medical and dental care not covered by insurance/Medicaid
- Special equipment and adaptive technology
- Vehicles and vehicle modifications
- Travel, recreation, entertainment
- Phone, internet, computer
- Clothing
- Personal care attendants (beyond what Medicaid provides)
- Burial and funeral expenses
- Legal and advocacy services
Be careful with — may reduce SSI benefits
Under SSI rules, in-kind support and maintenance (ISM) — paying for the beneficiary’s food or shelter — can reduce the SSI benefit by up to one-third. Items that count as ISM:
- Rent or mortgage payments
- Property taxes on the beneficiary’s home
- Heating, electricity, water (utilities)
- Food
Some SNTs explicitly avoid these expenses; others pay them with the understanding that SSI will reduce. The trade-off depends on the size of the SSI benefit vs. the value of the housing/food the SNT can provide.
Generally don’t pay for
- Direct cash distributions to the beneficiary (treated as countable income/assets)
- Anything illegal or contrary to the beneficiary’s interests
- Items prohibited by the specific trust document
Coordinating an SNT with the rest of the estate plan
A few specific actions that protect the SNT structure:
Update beneficiary designations
If you want assets from your retirement accounts, life insurance, or POD bank accounts to fund the SNT at your death, name the SNT as the beneficiary — not the disabled person directly. Naming the disabled person directly disrupts benefit eligibility.
This is one of the most-missed steps. Setting up the SNT is necessary but not sufficient; you also have to direct assets into it.
Tell other family members
Other relatives may want to leave assets to the disabled person. Tell them about the SNT and ask them to direct any gifts or inheritance through the trust rather than directly to the beneficiary.
Coordinate with the disabled person’s other planning
If the disabled person has a guardian or conservator, the guardianship should coordinate with the SNT. If they have an ABLE account (a tax-advantaged savings account for people with disabilities), the SNT can complement it.
A simple sequence for families
- Decide whether an SNT is needed. If your disabled family member qualifies for or might qualify for means-tested government benefits, the answer is usually yes.
- Find a special needs planning attorney. NAELA (National Academy of Elder Law Attorneys) maintains a directory; the Special Needs Alliance is another good source.
- Decide the structure. Third-party SNT for family-funded trusts; first-party SNT for the disabled person’s own assets; pooled SNT for smaller amounts.
- Choose a trustee. Family, professional, or co-trustees.
- Set up the trust. $2,000-$6,000+ in attorney fees.
- Update beneficiary designations to direct future inheritance and life insurance to the SNT.
- Tell other family members. Ask them to also direct gifts and inheritance through the trust.
- Review periodically. Benefit rules change; family circumstances change; the trust needs to keep up.
Resources
- National Academy of Elder Law Attorneys (NAELA): naela.org — find attorneys experienced in special needs planning
- Special Needs Alliance: specialneedsalliance.org — national network of special needs attorneys
- The Arc: thearc.org — disability advocacy organization, often administers pooled trusts
- ABLE National Resource Center: ablenrc.org — for ABLE accounts that complement SNTs
- Social Security Administration Spotlight on Trusts: ssa.gov/ssi/spotlights/spot-trusts.htm
Related reading
- Irrevocable Trust Explained
- Will vs. Trust: Which Do You Need?
- Beneficiary Designations
- Power of Attorney Explained
- How to Find a Good Estate Attorney
- Estate Planning Checklist
Educational information only — not legal, tax, or disability benefits advice. Special needs planning has serious consequences for government benefit eligibility. Always work with a qualified special needs attorney before creating or funding an SNT. Sources: Social Security Administration POMS on trusts; 42 U.S.C. §1396p(d)(4) (OBRA 93); state Medicaid agencies; National Academy of Elder Law Attorneys; Special Needs Alliance; The Arc.