Providing for a loved one with a disability — without costing them their benefits

Why an ordinary inheritance backfires

SSI and Medicaid are means-tested: a recipient generally may not hold more than $2,000 in countable resources. An inheritance, life insurance payout, or personal injury settlement paid directly to the person pushes them over that line — terminating cash benefits and, more importantly, the Medicaid coverage that often pays for attendant care, therapies, and waiver services no private insurance replaces. The family then watches the money spent down on care Medicaid would have covered, until benefits resume.

The two kinds of special needs trusts

Third-party special needs trusts

Funded with the family's money — typically through parents' wills, living trusts, or life insurance. Assets in a properly drafted third-party SNT don't count against the beneficiary's eligibility, the trustee pays for supplemental needs (housing extras, transportation, technology, recreation, services beyond what benefits cover), and — crucially — whatever remains at the beneficiary's death passes to other family members, with no Medicaid payback. This is the cornerstone of most parents' plans.

First-party ("self-settled") special needs trusts

Funded with the beneficiary's own money — most often an inheritance that arrived outright by mistake, or a lawsuit settlement. Federal law permits these for disabled individuals under 65, but requires a payback provision: at death, remaining funds reimburse Medicaid before anything passes to family. First-party trusts are the repair tool; third-party trusts are the plan.

Pooled trusts

Nonprofit-administered pooled trusts offer professionally managed sub-accounts and can be a practical option for smaller funding amounts or when no suitable trustee exists in the family.

ABLE accounts: the everyday companion

A Texas ABLE account lets a person whose disability began before the qualifying age threshold save and spend their own money — up to annual contribution limits — without endangering SSI or Medicaid, with tax-free growth for qualified disability expenses. ABLE accounts pair well with an SNT: the trust holds the wealth; the ABLE account gives the beneficiary day-to-day spending dignity, and can even pay rent without the SSI reduction that trust-paid housing triggers. ABLE accounts carry a Medicaid payback, so trustees typically fund them incrementally rather than in large sums.

Getting the whole family's documents aligned

A special needs plan fails if any one relative's paperwork ignores it. The checklist:

• Parents' wills and trusts route the disabled child's share into the SNT — never outright.
• Grandparents and other relatives are told the trust exists, so their gifts and bequests name the trust too.
• Beneficiary designations on life insurance and retirement accounts point to the trust, not the individual — retirement assets need particular drafting care.
• A letter of intent records the practical knowledge — routines, providers, preferences — that no legal document captures.
• Guardianship or supported decision-making for the adult child is addressed deliberately, not by default (see the guardianship guide).

Families ask.