Special Needs Trusts

Why a Special Needs Trust Matters

Many individuals with disabilities rely on SSI and Medicaid to cover basic living expenses, housing, and medical care. These programs are means-tested — they are available only to individuals whose assets fall below certain thresholds. Under federal SSI rules, a recipient generally may not have more than $2,000 in countable assets. An inheritance, personal injury settlement, or gift that pushes assets above that limit can result in immediate benefit suspension until the excess funds are spent down.

A properly drafted special needs trust allows assets to be held and used for the benefit of a person with a disability without counting toward their asset limits. The trustee can use trust funds to pay for goods and services that enhance the beneficiary's quality of life — items and experiences that government programs do not cover — without affecting benefit eligibility.

Types of Special Needs Trusts

• Third-Party Special Needs Trust — Funded with assets belonging to someone other than the beneficiary, typically a parent, grandparent, or other family member. This is the most common type and is often included in a parent's estate plan. A third-party trust is not subject to a Medicaid payback requirement at the beneficiary's death — any remaining assets pass to other family members or designated beneficiaries.
• First-Party (Self-Settled) Special Needs Trust — Funded with assets belonging to the person with a disability, such as a personal injury settlement, inheritance received directly, or accumulated savings. Under 42 U.S.C. § 1396p(d)(4)(A), a first-party trust must be established by a parent, grandparent, legal guardian, or court; the beneficiary must be under age 65; and the trust must include a Medicaid payback provision requiring that remaining assets reimburse the state for Medicaid benefits paid during the beneficiary's lifetime.
• Pooled Special Needs Trust — Administered by a nonprofit organization, a pooled trust combines the assets of multiple beneficiaries into a master trust for investment purposes while maintaining separate accounts for each individual. This option can be appropriate for smaller amounts or when a suitable individual trustee is not available. Pennsylvania has several established pooled trust programs.

What Trust Funds Can Be Used For

Permissible uses depend on the type of trust and the specific benefit programs involved. As a general matter, special needs trust funds should supplement — not replace — government benefits. Common permitted uses include:

• Education, tuition, and job training
• Computers, tablets, and assistive technology
• Entertainment, recreation, and travel
• Personal care attendants beyond what Medicaid covers
• Clothing, furniture, and household goods
• Therapy and medical services not covered by Medicaid
• Transportation and vehicle modifications
• Legal and financial services

Cash distributions directly to the beneficiary are generally discouraged and can reduce SSI payments dollar-for-dollar. Payments for food and shelter can also affect SSI in certain circumstances. Proper trustee guidance is essential to avoid inadvertent benefit reductions.

Including a Special Needs Trust in Your Estate Plan

If you have a child or other dependent with a disability, your estate plan should address what happens to your assets after your death. Without explicit planning, an inheritance left directly to a person receiving SSI or Medicaid will disqualify them from benefits — often before any meaningful assistance is received, as the funds are spent down on care that government programs would have covered.

A third-party special needs trust can be established as a standalone document or as a subtrust within your revocable living trust. Your will can also pour assets into a special needs trust at death. We coordinate the trust with your broader estate plan — including beneficiary designations on life insurance and retirement accounts — to ensure that all assets reach the trust rather than passing directly to the beneficiary.

Families with a special needs child should also consider a Letter of Intent (sometimes called a personal future plan). This non-legal document provides a trustee or guardian with a detailed picture of the beneficiary's daily routine, medical needs, preferences, and wishes for their future care. While not legally binding, it is an invaluable guide for those who will manage the trust or provide care after the parents are gone.

Choosing a Trustee

Selecting the right trustee is one of the most important decisions in special needs planning. The trustee must understand the complex interaction between trust distributions and government benefits, act in the beneficiary's best interest, handle financial recordkeeping, and coordinate with benefit program caseworkers. Options include:

• Individual trustee — A family member or trusted friend who knows the beneficiary personally. Individual trustees benefit from a close relationship with the beneficiary but may lack expertise in trust administration and benefits law. Many families name an individual trustee alongside a professional co-trustee or successor corporate trustee.
• Corporate trustee — A bank or trust company that provides professional administration and continuity. Corporate trustees do not bring personal knowledge of the beneficiary's needs.
• Nonprofit pooled trust — As noted above, a nonprofit acts as trustee and administrator for pooled trusts.

We discuss trustee selection in depth with every client establishing a special needs trust, and we can help identify appropriate corporate or pooled trust options in Pennsylvania.

ABLE Accounts and Special Needs Trusts

Pennsylvania's ABLE program (PA ABLE) allows individuals whose disability onset was before age 46 (expanded from age 26 effective January 1, 2026, under the ABLE Age Adjustment Act) to save up to $19,000 per year (2025 limit, adjusted annually) in a tax-advantaged account without affecting SSI or Medicaid eligibility, up to a cumulative balance of $100,000 for SSI purposes. ABLE accounts are flexible and can be managed directly by the beneficiary or their family, but contribution limits and balance caps make them insufficient as a complete planning vehicle for most families. A special needs trust and an ABLE account can complement each other — the trust for larger assets and long-term planning, the ABLE account for everyday spending flexibility.

What to Expect When You Work With Us

Call (724) 733-3500 or schedule a free consultation to discuss your family's situation.

Frequently Asked Questions

Can I leave money directly to my child with a disability in my will?

You can, but for a child receiving SSI or Medicaid, a direct inheritance will typically disqualify them from those benefits until the inheritance is spent down on care the programs would otherwise have covered. A special needs trust preserves eligibility while still providing meaningful support.

What if a grandparent or other relative wants to leave money to my child?

Relatives should be advised of the special needs trust and directed to leave gifts to the trust, not directly to your child. We provide clients with a brief letter they can share with family members explaining the importance of leaving gifts to the trust rather than outright. Beneficiary designations on life insurance policies and retirement accounts should name the trust, not the individual.

Does a special needs trust affect Medicaid eligibility in Pennsylvania?

A properly drafted third-party special needs trust does not count as a resource for SSI or Medicaid purposes, and distributions from the trust for permissible purposes do not affect eligibility. Pennsylvania's Medicaid rules follow the federal framework under 42 U.S.C. § 1396p. However, the rules are nuanced and proper drafting is essential — a poorly worded trust can inadvertently cause benefit issues.

What happens to the trust when my child dies?

For a third-party trust, remaining assets at the beneficiary's death pass to whomever you designate — typically other children, grandchildren, or a charity. There is no Medicaid payback requirement for third-party trusts. For a first-party (self-settled) trust, the state must be reimbursed for Medicaid benefits paid on the beneficiary's behalf before any assets pass to other beneficiaries.

Can I create a special needs trust using an online template or AI tool?

This is one area where a generic document can be genuinely dangerous. Every online legal service disclaims that they are not a law firm and do not provide legal advice — yet a special needs trust must be drafted to comply with federal Medicaid and SSI regulations while also satisfying Pennsylvania law. If the trust language gives the trustee too much discretion, the trust assets could be counted as available resources — disqualifying your beneficiary from the very programs the trust was designed to protect. If the trust doesn't include required provisions (like a Medicaid payback clause for first-party trusts), it won't be recognized at all.

When your child's government benefits are at stake, you need an attorney who drafted the trust, understands the regulatory framework, and is available when questions arise — not a platform that sold you a template and moved on. Every special needs trust we draft is tailored to the beneficiary's specific disability, benefit programs, and family circumstances.