Special needs trust

What it means

Means-tested benefits have strict asset limits. Money left directly to a disabled beneficiary can end their eligibility; money held in a properly drafted trust generally does not.

The trustee pays for things that supplement rather than replace what benefits provide, and the beneficiary cannot demand the money.

There are different kinds: one funded by somebody else's money, and one funded by the beneficiary's own — the latter usually carrying a requirement to repay Medicaid at death.

Why it matters

A well-meant inheritance is one of a frequent ways a disabled person loses benefits and housing, and it is entirely avoidable.

It also affects the rest of the family: grandparents and siblings naming the person as a beneficiary can cause the same problem without knowing.

When you are likely to meet it

• When a family member has a disability and receives benefits.
• When writing a will or naming beneficiaries.
• When an inheritance or settlement is coming to a disabled person.

How this varies by state

How a state's Medicaid program treats each kind of trust, and what it requires on the beneficiary's death, is set within federal rules by the state.

Related terms

• ABLE accountA savings account a disabled person can hold without losing means-tested benefits.
• Beneficiary designationA named person on an account or policy who receives it directly on death, without it passing through the will or probate.
• DependentSomebody who relies on you. It is a defined term in tax and in benefit programs, and it is not a category in inheritance law at all.
• Disclaimer of inheritanceFormally refusing an inheritance, so that it passes as though you had died first.
• Irrevocable trustA trust that generally cannot be changed or undone once created. Giving up control is the point of it.
• MedicaidA joint federal and state program that pays for health care, including long-term care, for people with limited income and assets.
• Medicaid estate recoveryA state's claim against the estate of somebody whose long-term care Medicaid paid for, to recover what it spent.
• Spendthrift clauseA term in a trust preventing a beneficiary from selling or pledging their interest, and preventing their creditors from reaching it.
• Testamentary trustA trust created by a will, coming into existence only when the person dies.
• TrusteeThe person or institution that holds and manages trust property for the people it is meant to benefit.
• UGMA and UTMA accountsCustodial accounts holding money for a child, which the child takes control of outright at an age set by state law.

Sahvelo guidance that uses this

• Wills and trusts
• Beneficiary designations