Published March 14, 2024
A special needs trust, also known as a supplemental needs trust, is a legal arrangement designed to provide financial support for an individual with disabilities without jeopardizing their eligibility for government benefits such as Medicaid and Supplemental Security Income (SSI). For North Carolina families caring for loved ones with disabilities, understanding these trusts is essential to ensuring long-term financial security.
First-party special needs trusts, also called self-settled trusts, are funded with assets that belong to the individual with disabilities. These trusts are often established when the individual receives a settlement, inheritance, or other financial windfall. To create a first-party special needs trust, the beneficiary must be under 65 years of age and meet the Social Security Administration’s definition of disabled.
An important consideration with first-party trusts is the Medicaid payback requirement. Upon the beneficiary’s death, any remaining funds in the trust must first be used to reimburse the state for Medicaid benefits provided during the beneficiary’s lifetime.
Third-party special needs trusts are funded with assets belonging to someone other than the individual with disabilities, such as a parent, grandparent, or other family member. These trusts can be created as part of an overall estate plan or established as a standalone trust.
Unlike first-party special needs trusts, third-party trusts do not have a Medicaid payback requirement. When the beneficiary passes away, any remaining funds can be distributed to other beneficiaries as outlined in the trust document. This makes third-party trusts a particularly attractive option for families planning ahead.
By setting aside funds in a properly structured special needs trust, you can provide for your loved one’s supplemental needs without disqualifying them from vital government assistance programs like Medicaid and SSI. If a beneficiary’s combined assets total more than $2,000, certain government agencies may disqualify the beneficiary from receiving benefits. However, assets contained in a special needs trust are not counted against the individual when determining eligibility.
Special needs trusts can pay for a wide range of supplemental expenses that government benefits do not cover, including recreation, travel, education, personal care items, and quality-of-life enhancements. The key is that trust distributions must supplement — not replace — government benefits.
A special needs trust provides a structured way to ensure that your loved one is cared for throughout their lifetime, even after you are no longer able to provide direct support. Choosing the right trustee to manage the trust is a critical decision that can affect the beneficiary’s quality of life for decades to come.
At HBHK Law, Bryan King brings a personal perspective to special needs planning as the father of a daughter with Down Syndrome. He understands the concerns families face and works to create comprehensive plans that protect both the individual’s benefits and their quality of life. Special needs planning may also involve coordinating with ABLE accounts, letter of intent documents, and selecting the right trustee. Call us at (919) 735-6420 to schedule a consultation.
Tell us about your situation and we'll connect you with the right attorney. Most consultations happen within 24–48 hours of first contact.