Special and Supplemental Needs Trusts

A special needs trust (also called a supplemental needs trust, or SNT) holds money for a person with a disability so the money can improve their life without counting against Medicaid or Supplemental Security Income (SSI). For families dealing with long-term care, special needs trusts come up in two main ways: protecting money for a disabled child or grandchild, and protecting a disabled person’s own savings, inheritance or legal settlement. This guide explains the main types, how they work and the rules that apply.

Figures change periodically. Double-check current amounts before relying on them.

The short version

There are three main types: first-party trusts (holding the disabled person’s own money), pooled trusts (run by a nonprofit), and third-party trusts (holding money from parents, grandparents or others).
First-party and pooled trusts must usually pay back Medicaid from what is left at the beneficiary’s death. Third-party trusts do not.
Money in a properly written special needs trust is not counted as the beneficiary’s asset.
The trustee pays for things that supplement what benefits cover, rather than handing cash to the beneficiary.
Transfers to a trust for a disabled person under 65 are an exempt transfer for Medicaid’s look-back, which makes these trusts important in long-term care planning.
An attorney prepares the trust.

Why special needs trusts matter

Medicaid and SSI have strict asset limits, often $2,000 for one person. A disabled adult who inherits $50,000 outright could lose both benefits until the money is spent. A special needs trust lets that money be used for the person’s benefit while they keep their health coverage and income support.

For older families, the trust matters in another way. A parent planning for their own long-term care may want to set money aside for a disabled child. Federal law treats transfers to a disabled child, or to a trust solely for a disabled person under 65, as exempt from the transfer penalty. See Exempt transfers.

Type 1: First-party (self-settled) special needs trusts

A first-party trust holds the disabled person’s own money, such as savings, an inheritance received outright, back benefits or a personal injury settlement. Federal law (Social Security Act section 1917(d)(4)(A), 42 U.S.C. 1396p(d)(4)(A)) sets the rules:

The beneficiary must be disabled under Social Security’s definition and under age 65 when the trust is funded.
The trust may be set up by the person themselves, a parent, a grandparent, a legal guardian or a court. (The ability of the disabled person to set up their own trust was added by the 21st Century Cures Act in 2016.)
The trust must be for the sole benefit of the disabled person.
At the beneficiary’s death, the trust must repay the state for Medicaid benefits it provided, before anything goes to other heirs.

Money added after age 65 generally does not get the same protection, and in many states would be treated as a transfer.

Type 2: Pooled trusts

A pooled trust (42 U.S.C. 1396p(d)(4)(C)) is run by a nonprofit organization. Each beneficiary has a separate sub-account, but the funds are pooled for investment and management.

The beneficiary must be disabled.
Federal law does not set an age limit for joining. However, some states treat deposits made by people 65 or older as a transfer that can cause a penalty, while others do not. This is an important state difference.
At death, the remaining funds either stay with the nonprofit to help other members, or repay Medicaid, depending on the trust terms and state rules.

Pooled trusts are popular for people who do not have a family member able to act as trustee, or who have a modest amount of money. In some states, a pooled trust is also used to shelter monthly income above the limit for people on community Medicaid.

Type 3: Third-party special needs trusts

A third-party trust holds money that never belonged to the disabled person, such as gifts or inheritances from parents, grandparents or other relatives.

There is no Medicaid payback requirement. When the beneficiary dies, what remains can go to other family members.
It can be set up during the parents’ lives, or created in a will or living trust to receive an inheritance.
Parents of a disabled child often name the third-party trust, rather than the child, as the beneficiary in their will, life insurance and retirement accounts.

A common mistake is leaving an inheritance directly to a disabled child, which can disrupt their benefits. See Estate planning basics for Medicaid.

Comparing the three types

	First-party	Pooled	Third-party
Whose money?	The disabled person’s	The disabled person’s (or others’)	Family or others
Age limit	Under 65 when funded	None in federal law; some states penalize 65+ deposits	None
Who manages?	A trustee chosen by the family or court	A nonprofit	A trustee chosen by the creator
Medicaid payback at death?	Yes	Yes, or retained by nonprofit	No

What the trust can pay for

The trustee generally pays providers directly for goods and services that improve the beneficiary’s quality of life, for example:

medical, dental and therapy costs not covered by Medicaid;
education, training and recreation;
a phone, computer or television;
travel, including to visit family;
furniture, clothing and personal items;
a care manager or advocate;
home modifications and equipment.

Paying directly for food or shelter has historically reduced SSI. Since September 30, 2024, under a Social Security rule change, food is no longer counted as in-kind support and maintenance for SSI, but paying for shelter (rent, mortgage, property tax, utilities) can still reduce the SSI check. Cash given directly to the beneficiary usually counts as income. Medicaid-only beneficiaries (without SSI) often have more flexibility, depending on the state.

The trustee’s job

A trustee must keep the trust’s money separate, keep careful records, file tax returns if required, and make distributions that follow both the trust document and the benefit rules. Mistakes can cost the beneficiary their benefits. Some families use a professional trustee or a pooled trust to avoid that burden.

An ABLE account is a tax-advantaged savings account for people whose disability began before a certain age. Starting January 1, 2026, the age-of-onset limit rose from 26 to 46 under federal law. Money in an ABLE account generally does not count for Medicaid, and up to $100,000 does not count for SSI. Annual contributions are limited, and ABLE accounts also have a Medicaid payback at death in most cases. Some families use both an ABLE account and a special needs trust.

Special needs trusts in long-term care planning

Two situations come up often for families on this site:

A parent needs care and has a disabled adult child. The parent can transfer assets to the child, or to a trust solely for the child’s benefit, without a transfer penalty. This can protect savings for the child’s future while the parent qualifies for Long-Term Care Medicaid.
A spouse at home or a disabled family member stands to inherit. Leaving money to them in a properly drafted trust, rather than outright, can avoid disrupting their eligibility.

These strategies have strict requirements. The “sole benefit” rule in particular is interpreted differently from state to state.

Getting help

Special needs trusts are legal documents that must meet federal and state requirements, and an attorney prepares them. Because they interact with the look-back, the spousal rules and estate recovery, a Certified Medicaid Planner can help a family decide whether a trust is the right tool and how it fits with the rest of a long-term care plan.

Frequently asked questions

Can a special needs trust be set up for someone over 65? A first-party trust under (d)(4)(A) cannot be funded after 65. A pooled trust may be available, but some states penalize deposits by people 65 or older. A third-party trust has no age limit.

Does the disabled person control the money? No. The trustee does.

What happens if the trust is written incorrectly? The money may be counted as the beneficiary’s asset, causing loss of benefits.

Is a special needs trust the same as a Miller trust? No. A Miller trust deals with income over a cap. A special needs trust holds assets for a disabled person.

Key terms

Sole benefit: the rule that a trust (or transfer) must benefit only the disabled person, with limited exceptions. States read this differently.
Payback provision: language requiring the trust to repay Medicaid at the beneficiary’s death.
Supplemental: extra goods and services that add to, rather than replace, what benefits provide.
In-kind support and maintenance (ISM): food or shelter provided to an SSI recipient, which can reduce the SSI check. Since September 30, 2024, food no longer counts as ISM.

Questions to ask before setting up a trust

Is the trust first-party, pooled or third-party, and why that type?
Who will be trustee, and who will step in if they cannot serve?
How will distributions be handled to protect both SSI and Medicaid?
How does the state treat transfers to the trust for a parent’s look-back?
What happens at the beneficiary’s death?

Last updated for 2026. General information only, not legal or financial advice. Medicaid Answers is a free educational resource published by Medicaid Answers Foundation.