How to Save Money Without Losing SSI & Medicaid
Introduction: Why Special Needs Trusts Matter
If you or a loved one receives Supplemental Security Income (SSI) or Medicaid, you may know that having too much money in savings could cause you to lose benefits.
SSI has a $2,000 asset limit for individuals ($3,000 for couples), meaning any extra money could disqualify you from receiving benefits.
That’s where a Special Needs Trust (SNT) comes in—it allows people with disabilities to save money without jeopardizing their benefits.
In this guide, we’ll cover:
✅ What a Special Needs Trust is & how it works
✅ The different types of Special Needs Trusts
✅ Who can set one up and how to fund it
✅ The differences between an SNT and an ABLE account
✅ How to get started with an SNT
Let’s break it all down!
What Is a Special Needs Trust (SNT)?
A Special Needs Trust (SNT) is a legal arrangement that holds money or assets for a person with a disability while allowing them to remain eligible for government benefits like SSI and Medicaid.
Key Benefits of an SNT:
✔ Funds in the trust DO NOT count toward SSI’s $2,000 asset limit
✔ Money can be used for disability-related expenses
✔ Protects Medicaid & other government benefits
✔ Can be funded by family members, settlements, or inheritances
💡 Without an SNT, receiving money from an inheritance or lawsuit could cause a person with a disability to lose benefits.
Types of Special Needs Trusts
There are three main types of Special Needs Trusts, and choosing the right one depends on who is funding it and how it will be used.
1. First-Party Special Needs Trust (Self-Funded SNT)
✔ Funded with the disabled person’s own money (e.g., an inheritance, legal settlement, or backpay from SSI/SSDI)
✔ Must include a Medicaid payback provision (Medicaid can claim any remaining funds after the person’s death)
✔ Used when a disabled person unexpectedly receives money
💡 Best for: Individuals who receive a lump sum of money and want to protect their benefits.
2. Third-Party Special Needs Trust (Family-Funded SNT)
✔ Funded by parents, grandparents, or other family members
✔ Can be funded while the beneficiary is alive or after their death
✔ NO Medicaid payback required (Unused funds can go to other family members)
✔ Used to provide long-term financial security
💡 Best for: Parents or relatives who want to provide financial support for a disabled loved one without affecting their benefits.
3. Pooled Special Needs Trust
✔ Managed by a nonprofit organization
✔ Funds from multiple beneficiaries are combined and invested
✔ Can be set up by the individual or their family
✔ Includes Medicaid payback after the beneficiary’s death
💡 Best for: People who don’t have a trustee to manage their SNT or those who want a professional organization to handle the funds.
How Can Special Needs Trust Funds Be Used?
Money in an SNT must be used for the benefit of the disabled individual but cannot be spent on food or housing if the person receives SSI.
✅ Allowed Expenses:
Medical & dental care not covered by Medicaid
Therapy, personal care, and home health aides
Education, job training, and assistive technology
Transportation (including accessible vehicles)
Vacations and entertainment
Clothing, furniture, and home modifications
❌ Not Allowed (If on SSI):
Rent or mortgage payments
Groceries or food
Utility bills
💡 Tip: If an SNT pays for food or housing, the person’s SSI benefits may be reduced, so it’s best to consult a lawyer when making distributions.
Special Needs Trust vs. ABLE Account: Which One Is Better?
Both Special Needs Trusts (SNTs) and ABLE accounts help individuals with disabilities save money without losing benefits, but they work differently.
ABLE Account Advantages:
✔ Easier to set up than an SNT
✔ Allows the individual to control their money
✔ No lawyer or trustee needed
✔ Can save up to $100,000 without affecting SSI
Special Needs Trust Advantages:
✔ No contribution limits
✔ Can be used for a broader range of expenses
✔ Best for large inheritances or lawsuit settlements
✔ Third-party SNTs do not have a Medicaid payback requirement
💡 Best Approach? Many people use BOTH—an ABLE account for everyday spending and an SNT for long-term savings.
Who Can Set Up a Special Needs Trust?
✔ First-Party SNTs must be set up by the disabled person, their parent, grandparent, guardian, or a court.
✔ Third-Party SNTs can be created by anyone except the disabled person.
✔ Pooled Trusts are managed by a nonprofit but can be set up by the disabled person or their family.
How to Set Up an SNT:
Consult a special needs attorney – Each state has different rules.
Choose a trustee – This person or organization will manage the trust funds.
Draft the trust document – This outlines how funds will be managed and used.
Fund the trust – Money can come from family gifts, inheritances, or life insurance policies.
Register the trust – In some states, trusts need to be filed with the court or state agencies.
💡 Pro Tip: Many parents fund a third-party SNT through a life insurance policy, ensuring financial security for their child.
How Purple Helps Manage Disability Benefits & Savings
Since staying under SSI’s $2,000 limit is crucial, Purple helps you manage your finances while keeping your benefits intact.
💜 Balance Tracking – Avoid exceeding SSI’s asset limit
💜 Benefit Monitoring – Track SNAP, Medicaid, and SSDI deposits
💜 Smart Budgeting Tools – Plan spending while keeping SSI eligibility
💡 Purple will soon integrate ABLE savings tools, making it even easier to protect your financial future.
FAQs About Special Needs Trusts
Do I Need a Lawyer to Set Up a Special Needs Trust?
Yes, because SNTs are legal documents that must comply with state and federal laws.
Can a Special Needs Trust Pay for Rent?
Not if the beneficiary receives SSI—paying rent could reduce benefits.
What Happens to the Money in an SNT After the Beneficiary Dies?
First-Party SNT: Medicaid may claim remaining funds.
Third-Party SNT: Money can be left to other family members.
Can I Have an ABLE Account and a Special Needs Trust?
Yes! Many people use both for flexibility and long-term savings.
Conclusion: Protect Your Benefits with a Special Needs Trust
A Special Needs Trust (SNT) is an essential tool for saving money without risking SSI or Medicaid benefits.
By choosing the right type of trust, you can ensure financial security for yourself or a loved one while keeping government assistance intact.
💜 Sign Up for Purple to Manage Your SSI & Disability Benefits the Right Way!