Trusts for People with Disabilities:

What Caregivers Need to Know

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If you care for a loved one with a disability, it's important to understand how trusts can protect their financial future without affecting benefits like SSI (Supplemental Security Income) or Medicaid. This page will explain different types of trusts, why they matter, and how to set them up.

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Why Create a Trust?

If someone with a disability receives money — like an inheritance, a settlement, or even gifts — it could disqualify them from benefits like Social Security or Medicaid.

A trust helps manage that money without putting public benefits at risk.

What Are the Different Types of Trusts?

1. First-Party Special Needs Trust

• Funded with the beneficiary’s own money (from a lawsuit settlement, inheritance, etc.)

• Must include a Medicaid payback provision (any funds left after death may go to repay Medicaid)

• Used when a person with a disability suddenly receives funds

2. Third-Party Special Needs Trust

• Funded by family or friends

• Can be created during their lifetime or in a will or estate plan

• No Medicaid payback requirement

• Protects benefits while giving extra support

3. Revocable Living Trust

• Created during the grantor’s lifetime

• Can be changed or canceled at any time by the grantor

• Helps avoid probate court and can help with guardianship planning

• Often not used alone for special needs but can work with a special needs trust

4. Irrevocable Trust

• Once set up, cannot be changed

• Offers asset protection from creditors and lawsuits

• Special needs trusts are usually irrevocable to ensure long-term benefit protection

Special Needs Trust vs. Irrevocable Trust – What’s the Difference?

• Special Needs Trusts are usually irrevocable

• Meant to supplement (not replace) SSI, Medicaid, and other benefits

• Funds can go to ABLE accounts to help with housing or food without affecting SSI

How Do Trusts and Taxes Work?

Each trust has different tax rules. Click here for more on trust taxation. 

How Do I Set Up a Special Needs Trust?

1. A family member or loved one signs the trust documents

2. An attorney drafts the legal paperwork

3. Assets are transferred into the trust

4. A trustee is appointed to manage the trust

How Does a Trust Affect SSI Benefits?

• Visit the SSA website for details: SSI & Trusts

How Do I Choose a Trustee?

You can choose:

• A person (family or friend)

• A corporate trustee (bank or trust company)

A trustee should:

• Understand special needs planning

• Be trustworthy, organized, and responsible

• Work with professionals (like care managers) when needed

Tip: If no one close can take the role, a care management team can help support the trustee and ensure your loved one’s needs are met.

What if I’m Not Sure About the Trustee?

• You can appoint a Trust Protector – someone who watches over the trustee and can replace them if needed

• Trustees can be removed if they fail in their duties

Click here to learn how trustees can be removed 

Special Notes for Minors

• If the beneficiary is under 18 and receives a financial settlement, a corporate trustee must be used

• The trustee must follow all terms set in the trust document