Special Needs Trusts (SNTs) in Pennsylvania: What They Are, When You Need One, and Key Legal Considerations

What Is Special Needs Planning?

Special needs planning ensures that individuals with disabilities receive financial support without losing the public benefits they rely on. Families often must consider who will care for their loved one, where that care will take place, and how it will be funded—whether through private sources or Medicaid waiver programs. An important part of this planning is using Special Needs Trusts (SNTs) to supplement, not replace, public benefits.

Because the cost of residential care alone can exceed $100,000 per year for individuals with intellectual disabilities, SNTs often play an essential role in long‑term financial security.

Why Public Benefits Matter in SNT Planning

To understand SNTs, it helps to know how eligibility works for key benefits such as Supplemental Security Income (SSI) and Medicaid. SSI has strict income and resource limits—typically no more than $2,000 in countable assets, excluding items like a primary residence, one vehicle, and an irrevocable burial reserve.

SSI also uses a specific disability definition: adults must be unable to engage in substantial gainful activity due to a medically determinable impairment expected to last at least 12 months. Children must have marked and severe functional limitations.

In Pennsylvania, individuals who qualify for SSI are automatically enrolled in Medicaid, simplifying access to critical services. Medicaid waiver programs then help support community living, employment, and other essential needs.

What Is a Special Needs Trust?

A Special Needs Trust is a legal tool that holds funds for a person with disabilities while protecting eligibility for resource‑based benefits like SSI and Medicaid. The trust pays for supplemental needs—things that improve quality of life—while public benefits cover essential care.

SNTs can pay for items such as clothing, technology, transportation, entertainment, travel, and unreimbursed medical expenses. What they cannot do is give cash directly to the beneficiary or pay for items considered “shelter,” such as rent or mortgage, without affecting SSI.

Types of Special Needs Trusts

1. Self‑Funded Special Needs Trust (First‑Party SNT)

A self‑funded SNT is funded with the beneficiary’s own assets—often from a personal injury settlement, unplanned inheritance, or accumulated savings. These trusts must follow federal law (42 U.S.C. §1396p(d)(4)(A)).

Key characteristics include:

• Must be created by a parent, grandparent, guardian, court, or competent beneficiary

• Beneficiary must be under age 65 when funded

• Trust must be irrevocable and for the beneficiary’s sole benefit

• At death, Medicaid must be repaid from remaining trust assets

Public agencies in Pennsylvania must be notified, and the state’s Department of Human Services must approve the trust.

2. Third‑Party Special Needs Trust

A third‑party SNT is funded with assets belonging to someone other than the beneficiary, such as parents or grandparents. Unlike self‑funded trusts, these trusts do not require Medicaid payback at the beneficiary’s death.

They can be created during the donor’s lifetime or through a Will. They offer excellent flexibility and can be structured to accept gifts, inheritances, or life insurance proceeds intended for the beneficiary.

3. Pooled Special Needs Trust

Pooled trusts are run by nonprofit organizations and contain separate sub‑accounts for individual beneficiaries while pooling investments for efficiency. Anyone—including the beneficiary—can establish an account.

Upon the beneficiary’s death, many pooled trusts keep a portion of the remaining funds to support other participants; some return funds only after reimbursing Medicaid. Notably, Pennsylvania treats transfers to a pooled trust after age 65 as gifts that may trigger Medicaid penalties.

When Clients Need a Special Needs Trust

SNTs are helpful in many real‑life situations. Families often use them when:

• Creating an estate plan for a child with disabilities: Parents want to leave money to their child without jeopardizing benefits. A third‑party SNT ensures this future support is protected.

• A disabled individual unexpectedly inherits money: A grandparent may leave funds outright, unintentionally disrupting benefits. A self‑funded SNT can preserve eligibility while keeping funds available.

• A personal injury settlement is awarded: Plaintiffs who depend on benefits often need an SNT to hold settlement proceeds safely. Courts frequently require a compliant trust in these cases.

• Income streams such as child support or alimony create eligibility issues: Social Security allows these payments to be irrevocably assigned to a self‑funded SNT.

• Community fundraising occurs: Well‑intentioned campaigns can unintentionally disqualify the beneficiary from benefits if funds are given outright. Directing donations to a third‑party SNT avoids this problem.

• Elder law planning involves a disabled family member: Older adults may transfer funds to a “sole benefit” trust for a disabled relative under 65 as part of Medicaid planning.

SNT Administration: What Trustees Should Know

Trustees play a crucial role in managing an SNT. They must use trust funds only for the beneficiary’s benefit, keep detailed records, invest prudently, and comply with benefit rules.

Some important guidelines include:

• No cash can be given directly to the beneficiary

• Trustees should pay vendors directly for goods and services

• Housing‑related payments may reduce SSI benefits

• Trusts can own property or vehicles—but with special rules

• All receipts and documentation must be kept

Items typically paid for by an SNT include clothing, transportation, computers, vacations, entertainment, medical devices, and respite care.

How SNTs Fit Into Your Estate Plan

A crucial step in estate planning is ensuring that any assets intended for a person with special needs pass into the SNT—not to the individual directly. This includes updating Wills, trusts, life insurance beneficiary designations, and retirement accounts.

For retirement accounts like IRAs, special drafting may allow the SNT to qualify for lifetime stretch rules under the SECURE Act if the trust is properly structured as an “accumulation trust” for the sole benefit of the disabled beneficiary.

ABLE Accounts: A Useful Companion Tool

Pennsylvania also allows ABLE accounts, which are tax‑advantaged savings accounts for individuals whose disability began before age 46 (effective January 1, 2026). These accounts allow up to $20,000 in annual contributions (2026 limit), grow tax‑free, and do not count as assets for SSI up to $100,000.

ABLE accounts can be used for housing expenses without reducing SSI—something SNTs cannot do. They offer flexibility, especially for competent individuals who want more control over their spending. Many families benefit from having both an SNT and an ABLE account.

Alternatives to SNTs

Although SNTs are usually the preferred option, alternatives exist:

• Spend‑down: A competent individual may spend funds within the month of receipt on items for themselves, keeping assets below the $2,000 limit.

• Disinheritance: Sometimes considered, but risky. Funds left to a sibling “for use on behalf of” a disabled person can be lost to creditors or divorce. SNTs protect against this.

• ABLE Accounts: Best for smaller funds, working beneficiaries, or shelter expenses.

Final Thoughts

Special Needs Trusts offer families peace of mind, financial security, and long‑term planning solutions tailored to the needs of individuals with disabilities. Whether funded by parents, the beneficiary, or the community, SNTs must be carefully drafted and administered to work as intended.

Given the complexity of SSI and Medicaid rules—along with estate planning and tax considerations—working with knowledgeable counsel is essential.

Call the Ament Law Group Today

If you’re planning for a loved one with special needs or have questions about creating or administering a Special Needs Trust, the attorneys at the Ament Law Group are here to help. Contact us today for guidance tailored to your family’s needs.