A direct inheritance can disqualify someone with a disability from the government benefits they depend on. A special needs trust solves that problem, holding assets in a way that supplements those benefits rather than replacing them. For families planning ahead, it is one of the most important tools available. For families who have not planned, the options become narrower over time.
Why Leaving Money Outright Can Be a Mistake
SSI (Supplemental Security Income) and MassHealth both have strict asset limits. In most cases, an individual cannot own more than $2,000 in countable assets and remain eligible. A well-intentioned inheritance, even a modest one, can push a beneficiary over this threshold, triggering a loss of benefits that may be difficult to restore.
The solution is not to disinherit the person with a disability, but to structure the inheritance through a trust that holds the assets separately from the beneficiary's own estate for program eligibility purposes.
First-Party vs. Third-Party Special Needs Trusts
First-Party SNT (Self-Settled)
- Funded with the beneficiary's own assets, typically from a personal injury settlement, inheritance received directly, or retroactive disability benefits
- Must be established by a parent, grandparent, legal guardian, or court, not by the beneficiary themselves
- Beneficiary must be under age 65 at establishment
- Must include a "payback" provision, at the beneficiary's death, Medicaid is reimbursed for benefits paid
- Also called a "(d)(4)(A) trust" after the federal statute that authorizes it
Third-Party SNT
- Funded by someone other than the beneficiary, parents, grandparents, siblings, or other family members
- No age limit at establishment
- No Medicaid payback requirement at the beneficiary's death, remaining assets pass to other heirs as directed by the trust
- The preferred structure when family members are creating a trust as part of their own estate planning
- Can be established during life or created through a will (testamentary SNT)
For most families doing estate planning for a child or other family member with a disability, the third-party SNT is the appropriate vehicle. First-party trusts are generally used in personal injury and similar contexts where the beneficiary receives funds directly.
What a Special Needs Trust Can, and Cannot, Pay For
Supplemental Expenses (Permitted)
- Education and vocational training
- Technology, computer, tablet, phone
- Entertainment, recreation, hobbies
- Transportation and vehicle expenses
- Clothing and personal items
- Travel and vacations
- Therapies not covered by MassHealth
- Private caregiving supplements
- Home modifications and accessibility equipment
In-Kind Support & Maintenance (Restricted)
- Cash payments directly to the beneficiary
- Rent or mortgage payments (reduces SSI dollar-for-dollar)
- Groceries and food (may reduce SSI)
- Utility bills paid directly (may reduce SSI)
- Anything that duplicates what a benefit program already covers
The trustee must be familiar with these rules and manage distributions carefully. An improper distribution, particularly cash or in-kind support for food and shelter, can reduce SSI benefits or trigger a review of MassHealth eligibility.
Choosing a Trustee
The trustee of a special needs trust carries significant responsibility. They must understand benefit program rules well enough to make distributions that help without disqualifying. They must keep careful records, file required accountings, and advocate for the beneficiary's interests over time.
Family members can serve as trustees, and often do, particularly when they have a close relationship with the beneficiary and can make practical day-to-day spending decisions. But family trustees should be prepared to educate themselves about benefit rules and seek professional guidance regularly.
Pooled special needs trusts, administered by nonprofit organizations such as The Arc of Massachusetts, are an alternative when a professional trustee is preferred but a corporate trust is too costly. Pooled trusts aggregate assets for investment purposes while maintaining separate accounts for each beneficiary.
Including an SNT in Your Estate Plan
If you have a family member with a disability, your estate plan should almost certainly include a special needs trust, or at minimum, a provision directing that any share passing to that person be held in trust rather than distributed outright. Standard will and trust provisions that distribute assets outright will not protect benefit eligibility.
It is equally important to review beneficiary designations on life insurance policies and retirement accounts. These assets pass outside the will, and a direct beneficiary designation to a person with a disability can inadvertently trigger disqualification regardless of how carefully the will is written.
Contact Brigantine Law to discuss how a special needs trust fits into your family's estate plan.
The goal of a special needs trust is to improve a person's life without costing them the support systems they cannot live without. Getting that balance right requires careful drafting and proper funding, not just a signed document.
The most common planning mistake families make is leaving assets to a person with a disability outright. Even a well-intentioned inheritance in a will, or a life insurance policy naming the person directly, can trigger an immediate loss of SSI and MassHealth eligibility. A special needs trust must be set up correctly and funded from the right sources. A document that looks right may still create serious problems if it is not drafted to current program rules.