Special Needs Trust (SNT)
What Is a Special Needs Trust and Why Would Someone Need One?
A Special Needs Trust (SNT) protects assets for the sole benefit of a person with disabilities, allowing them to qualify for vital benefits such as Medicaid. Sometimes called a Supplemental Needs Trust, Special Purpose Trust, or Special Treatment Trust, it helps someone meet Medicaid’s strict asset limit (often $2,000) without giving up resources that could improve their quality of life. Trust funds are used to pay for needs that Medicaid or Medicare won’t cover—such as in-home support, vitamins, cell phone service, or home repairs.
Are There Different Types of Special Needs Trusts?
First-Party SNTs
Funded with the disabled person’s own assets, these trusts are restricted to individuals under age 65. They can be created by the person, their parent, grandparent, guardian, or a court. Transfers into a First-Party SNT before age 65 do not violate Medicaid’s look-back rules, but no additional funds can be added after that age without triggering penalties. Upon the beneficiary’s death, any remaining funds must first reimburse Medicaid for costs paid during their lifetime.
Third-Party SNTs
Funded with assets owned by someone other than the person with a disability—often a parent—these trusts have no age restriction. They cannot be used as a Medicaid-eligibility tool for the disabled person, but they can improve quality of life without affecting benefits. Unlike First-Party SNTs, Medicaid is not entitled to repayment from these trusts after the beneficiary’s death.
Pooled Special Needs Trusts
Managed by a nonprofit organization, these trusts pool and invest assets from multiple beneficiaries but keep individual accounts separate. They can be first-party or third-party funded. In many states, individuals over age 65 who transfer their own assets into a pooled trust may trigger a Medicaid look-back penalty. Upon death, most pooled trusts repay Medicaid first, with leftover funds either going to family or staying in the trust to help others with disabilities.
Who Qualifies as “Disabled” for an SNT?
Eligibility follows the Social Security Administration’s definition of disability: the inability to engage in substantial work due to a physical or mental impairment lasting at least 12 months or expected to result in death. The SSA maintains an Adult Listing of Impairments, which includes conditions such as certain cancers, stroke, Parkinson’s, COPD, Alzheimer’s, and others—though having a listed condition does not automatically guarantee a disability determination.
How Does an SNT Work?
Creating an SNT involves four key roles:
- Grantor: The person providing the funds.
- Trustee: The person or nonprofit managing the trust—never the beneficiary.
- Trust Beneficiary: The person with a disability for whom the trust is established.
- Residual Beneficiary: Receives any remaining funds after the trust beneficiary dies.
When properly structured, the assets in the trust are not counted toward Medicaid’s asset limit. However, in many states, certain transfers to pooled trusts for people over 65 may be penalized under the look-back rules.
What Are the Medicaid Compliance Requirements?
- The trust must be irrevocable (Third-Party SNTs are an exception).
- The beneficiary must meet SSI’s definition of disabled.
- Funds must only be used for the sole benefit of the disabled person.
- First-Party and most pooled trusts must name the state as the residual beneficiary to repay Medicaid costs after death.
What Can SNT Funds Be Used For?
SNT funds can only supplement—never replace—Medicaid or Medicare benefits. Examples include:
- Home modifications, furniture, and appliances
- Personal care services and private nursing upgrades
- Transportation, vehicle purchase or repair
- Vacations (including an aide’s costs)
- Clothing, grooming, and personal care items
- Educational expenses, internet, cable, and phone service
- Alternative medical treatments, vitamins, and over-the-counter medicine
Funds cannot be used for gifts, and allowable expenses may differ by state.
Comparison of SNT Types
| Feature | First-Party SNT (d4A) | Third-Party SNT | Pooled SNT (d4C) |
|---|---|---|---|
| Age Requirement | Under 65 | No limit | No limit |
| Whose Assets Fund It? | Disabled individual’s own assets | Assets from someone else | Disabled individual’s own assets |
| Who Can Establish? | Beneficiary, parent, grandparent, guardian, or court | Anyone except the beneficiary | Beneficiary, parent, grandparent, guardian, or court |
| Trustee | Anyone but the beneficiary | Anyone but the beneficiary | Nonprofit organization |
| Pays for Supplemental Needs? | Yes | Yes | Yes |
| Medicaid Look-Back Violation? | No | No | Yes, for 65+ in most states |
| Medicaid Repayment Required? | Yes | No | Yes, in most cases |
Do You Need an Attorney to Create an SNT?
Yes. These trusts are highly regulated and state-specific. A Certified Medicaid Planner can coordinate with an elder law attorney to ensure the trust meets all legal requirements. Mistakes can result in Medicaid denial or ineligibility due to look-back penalties.
