If you have a loved one with a disability, chances are you’ve already realized that planning for the future isn’t just about where the money goes. It’s about making sure your child or family member is safe, supported, and financially secure—even when you’re not around to take care of things. You may be wondering about what a special needs trust is.
If you want to leave assets for your child with special needs and make sure they maintain benefits, you will need a special needs trust. It’s one of the most valuable tools we have to protect assets and ensure ongoing access to benefits like Medicaid and SSI. Without one, families risk unintentionally disqualifying their loved one from crucial services.
You may have heard suggestions that you don’t need a special needs trust if your loved one only has a few thousand dollars, and in some cases, that may be true—an ABLE account can be a great tool for small amounts. But that advice doesn’t take into account the unexpected. If you and your spouse were to suddenly pass away, your estate would go to your next of kin—your children. And without a special needs trust in place, your child with a disability could inherit those assets directly and lose the government benefits they rely on. Planning ahead prevents that.
Let’s break it down in plain English.
So, What Is a Special Needs Trust?
A Special Needs Trust is a legal way to set aside money or other assets for a person with a disability without affecting their eligibility for government benefits. Many people with special needs require government assistance because they are not able to work and support themselves. Because they can’t work, they require government health care and they often have complex medical needs. That’s key—because benefits like Medicaid and Supplemental Security Income (SSI) have strict income and asset limits which are very easy to inadvertently exceed.
If someone with a disability suddenly receives an inheritance, a lawsuit settlement, or a financial gift, they could lose those benefits. A Special Needs Trust helps avoid that. When properly drafted, the assets in the trust are not in the person’s name and not a countable resource for eligibility.
The 3 Types of Special Needs Trusts
There are three main types of SNTs. Here’s a quick explanation:
- First-Party SNT:
In Arizona, this is known as a Special Treatment Trust. It is also known as an OBRA 93 Medicaid payback trust. This trust is funded with the beneficiary’s own money. This is money that has come directly to the person whether as their own income, inheritance, lawsuit settlement, or any other way. The important thing to know is that it is in their name. During their lifetime, the funds are available for their benefit. After the person passes, the state can claim leftover funds to repay Medicaid expenses. - Third-Party SNT:
Funded by someone else—usually a parent or grandparent. This one is not subject to Medicaid payback rules and is often used in estate plans. The trust cannot be funded with money that is in the person’s name. - Pooled SNT:
A nonprofit manages a big pool of funds from many people in one trust, but each person still has their own account. This trust offers the protection of a special needs trust, but it has limitations. The family or caregivers do not have any authority over the trust. This is a good option if there’s no individual trustee available or if the amount being set aside is relatively modest.
Why Families Use Special Needs Trusts
Here’s what an SNT can do for you:
- Protect access to benefits – Your loved one can continue to receive Medicaid, SSI, or housing assistance.
- Supplement care – Trust funds can cover things like therapy, recreation, travel, or caregiving extras.
- Provide peace of mind – You’ll know there’s a plan in place—your plan—for what happens next.
- Avoid conflict later – With everything spelled out, there’s less room for confusion or family disagreements.
A Quick Word of Encouragement
If this feels like a lot—it is. And that’s okay. You don’t need to figure it all out overnight. What matters most is starting the conversation.
Whether you’re planning for a child, an adult child, or a sibling with disabilities, a Special Needs Trust is a powerful way to protect them while honoring their dignity and independence.
Need help thinking it through? That’s what I’m here for.
I am not an attorney or financial advisor, and this post does not constitute legal or financial advice. The information provided is for educational purposes only. Please consult a qualified attorney for advice specific to your family’s situation. Disclaimer
