A Special Needs Trust (SNT) is a powerful financial tool that helps individuals with disabilities save money, manage assets, and maintain eligibility for government benefits like Supplemental Security Income (SSI) and Medicaid. If you or a loved one receives disability benefits, an SNT can provide long-term financial security without risking essential assistance.
This guide explains what a Special Needs Trust is, how it works, and how to decide if it’s the right option for you.
1. What Is a Special Needs Trust?
A Special Needs Trust (SNT) is a legal arrangement that holds assets for a person with disabilities while ensuring those assets do not count against SSI and Medicaid eligibility limits.
Why is this important?
SSI & Medicaid have strict asset limits (e.g., $2,000 for individuals on SSI).
If a person with disabilities inherits money, receives a legal settlement, or gets financial gifts, it could disqualify them from benefits.
An SNT protects these assets while allowing the beneficiary to continue receiving support.
2. Types of Special Needs Trusts
There are three main types of Special Needs Trusts, each serving different needs:
A. First-Party Special Needs Trust (Self-Settled SNT)
✅ Funded with the disabled individual’s own money (e.g., an inheritance, legal settlement, or back payments from benefits).
✅ Must be set up before the individual turns 65.
✅ Medicaid must be repaid from the trust upon the beneficiary’s death.
📌 Best for: People with disabilities who receive a sudden windfall (e.g., lawsuit settlement) and need to protect benefits.
B. Third-Party Special Needs Trust
✅ Funded by family members (e.g., parents, grandparents) for the benefit of a person with disabilities.
✅ Can hold inheritances, life insurance payouts, or family gifts.
✅ Medicaid does NOT need to be repaid when the beneficiary passes away.
📌 Best for: Families who want to provide long-term financial security for a disabled loved one.
C. Pooled Special Needs Trust
✅ Managed by a nonprofit organization.
✅ Multiple beneficiaries’ funds are pooled together for investment purposes while maintaining separate accounts.
✅ A portion of any remaining funds may go to the nonprofit after the beneficiary’s passing.
📌 Best for: Individuals with no family to manage a trust or those needing a lower-cost trust option.
3. What Can a Special Needs Trust Pay For?
Funds from an SNT cannot be used for basic needs like food and rent (which are covered by SSI). However, they can be used for:
✅ Medical expenses not covered by Medicaid
✅ Personal care attendants or home modifications
✅ Education & vocational training
✅ Transportation (vehicles, accessible rides)
✅ Assistive technology (hearing aids, mobility devices)
✅ Recreation & entertainment
✅ Legal fees & financial planning
📌 Key Tip: Always consult with an attorney or trustee before making purchases to avoid impacting benefit eligibility.
4. Special Needs Trust vs. ABLE Account: Which One Is Right for You?
Both SNTs and ABLE accounts help people with disabilities save money while maintaining benefits, but they serve different purposes:
Special Needs Trust (SNT):
Best for long-term financial security and large savings.
No limit on contributions (varies by trust agreement).
Cannot be used for food or housing expenses without impacting SSI.
Medicaid repayment may be required (for First-Party SNTs).
ABLE Account:
Best for everyday expenses and small savings.
Annual contribution limit of $19,000 (2025 limit).
Can be used for housing, food, and other disability-related expenses.
Medicaid payback applies after the beneficiary’s death.
📌 Key Takeaway: If you need long-term financial security, an SNT is best. If you need more flexibility for everyday expenses, an ABLE account may be a better fit.
5. How to Set Up a Special Needs Trust
Creating an SNT involves legal and financial planning to ensure the trust is structured correctly.
Step 1: Determine Which Type of SNT You Need
First-Party SNT – If you’re using your own money (e.g., inheritance, settlement).
Third-Party SNT – If family members are funding it for you.
Pooled SNT – If you prefer a nonprofit to manage it.
Step 2: Work with an Attorney
Consult a special needs planning attorney to draft the trust document.
Ensure the trust meets SSI & Medicaid regulations.
Step 3: Choose a Trustee
A trustee manages the funds and ensures they’re used appropriately.
Options include family members, a financial institution, or a professional trustee.
Step 4: Fund the Trust
Contributions can come from inheritances, life insurance, or financial gifts.
Set up the trust in a way that avoids benefit disqualification.
Step 5: Manage & Monitor the Trust
The trustee must keep records of all expenditures.
Periodic reviews ensure the trust continues to serve the beneficiary’s needs.
6. Secure Your Financial Future with Purple
A Special Needs Trust can provide long-term security and peace of mind for individuals with disabilities and their families. But managing finances while on SSI or SSDI can be challenging.
💜 Purple helps you track your benefits, monitor spending, and plan for the future. Get started with Purple today!