If you have a child, sibling, or family member with a disability who depends on Supplemental Security Income (SSI) or Medicaid, leaving them money the wrong way can wipe out their benefits overnight. A simple inheritance, a life insurance payout, or a personal injury settlement can push them past the $2,000 resource limit and disqualify them from the very programs that pay for their care.
A special needs trust solves that problem. It holds assets for the benefit of a person with disabilities while keeping those assets from counting against the $2,000 SSI resource limit and Medicaid eligibility thresholds.
The harder question is which kind of trust you need, and whether your family’s situation actually calls for one.
A special needs trust is a legal arrangement that holds money or property for someone with a disability. Because the trust technically owns the assets, the beneficiary does not, which means those assets are not counted when government programs check eligibility.
Federal law authorizes these trusts under 42 U.S.C. § 1396p(d)(4). North Carolina follows that framework and adds its own rules through Chapter 36C, the North Carolina Uniform Trust Code, and Chapter 36D, which governs pooled trusts.
The trustee uses the funds for things government benefits do not cover: therapy, adaptive equipment, education, transportation, and quality-of-life expenses. Structured correctly, the beneficiary keeps their SSI and Medicaid intact.
The Social Security Administration caps countable resources for SSI recipients at $2,000 for an individual and $3,000 for a couple in 2026. These limits have not changed in decades. Medicaid eligibility in North Carolina mirrors many of these resource rules.
That means a $5,000 inheritance can disqualify someone from SSI, a modest insurance payout can end Medicaid coverage, and a wrongful death settlement can leave a person with disabilities worse off than before.
Once benefits are lost, getting them back is a slow process. Coverage gaps can mean missing therapy sessions, losing access to specific Medicaid waiver programs, or losing housing assistance. For many families, the trust is not optional. It’s the only way to pass money to a loved one without doing harm.
The right structure depends on whose money is funding the trust and the beneficiary’s age.
Funded with the disabled person’s own assets, often from a personal injury settlement, a direct inheritance, or back-pay from Social Security. Authorized under 42 U.S.C. § 1396p(d)(4)(A).
Key requirements: the beneficiary must be under 65 when the trust is established, must meet the Social Security definition of disability, and the trust must include a Medicaid payback provision. When the beneficiary dies, any remaining funds reimburse the state for Medicaid benefits paid during their lifetime, before anything goes to the family.
In North Carolina, when the beneficiary is a minor or has been adjudicated incompetent, establishing a first-party trust may require a petition to the Clerk of Superior Court and notice to the state Medicaid agency.
Funded with someone else’s money: a parent, grandparent, sibling, or any other person who wants to provide for the beneficiary. This is the most common structure for estate planning.
The big advantage: there is no Medicaid payback. When the beneficiary dies, any remaining trust assets pass to whomever the family chose, often other children, grandchildren, or charity.
Third-party trusts can be created during life or established through a will or revocable living trust. They can hold cash, life insurance proceeds, real estate, and other assets.
Managed by a nonprofit organization, with individual sub-accounts for each beneficiary pooled together for investment purposes. Authorized under 42 U.S.C. § 1396p(d)(4)(C) and recognized in North Carolina under Chapter 36D. Pooled trusts work well for smaller balances or when the family does not have someone willing to serve as trustee. Funds remaining in a sub-account at death may be retained by the nonprofit to help other beneficiaries with disabilities.
A trust is the right tool when a family member receives or expects to receive SSI, Medicaid, or another means-tested benefit; when an inheritance, life insurance payout, or settlement could push assets above benefit limits; when parents want to leave assets to a child with a disability without disrupting that child’s care; when a personal injury settlement is being negotiated for a person with disabilities; or when aging parents are planning for the long-term care of an adult child with disabilities.
The trust does not replace the benefits. It supplements them, paying for things that improve daily life.
Not every family with a disabled member needs a special needs trust. Skip it when the person does not and will not qualify for means-tested benefits, when they have substantial private resources covering their care, or when the disability does not affect their ability to manage assets and benefits.
For some families, an ABLE account is enough. North Carolina’s NC ABLE program allows people whose disability began before age 46 to save up to $100,000 without affecting SSI. The 2026 annual contribution limit is $20,000. ABLE accounts are simpler and cheaper than trusts and work well for everyday expenses.
Many families use both: an ABLE account for routine spending and a special needs trust for larger assets, inheritances, and long-term planning.
Even a properly drafted trust has limits:
These rules are why a special needs trust is not a fill-in-the-blank document. It needs to be drafted by an attorney familiar with both the trust mechanics and current benefit rules.
The trustee makes or breaks a special needs trust. Whoever serves should understand the rules around SSI, Medicaid, and in-kind support. They need to keep careful records of every distribution, communicate well with the beneficiary, family, and benefits agencies, and be available long-term, often for decades.
For larger trusts, families often name a corporate trustee or an attorney as co-trustee with a family member. This combines professional benefit knowledge with personal understanding of the beneficiary’s needs.
A special needs trust does not replace the rest of an estate plan. It works alongside a will that directs specific assets into the trust at death, revocable living trusts that pour over to the special needs trust, beneficiary designations on retirement accounts and life insurance that name the trust (not the beneficiary directly), powers of attorney and advance care planning documents for the disabled person, and coordination with siblings or other beneficiaries so no one accidentally leaves money directly to the disabled person.
Even a generous grandparent who names the disabled grandchild on a life insurance policy can blow up the plan. Every potential source of funds needs to point to the trust, not to the person.
Costs vary based on complexity, the size of the estate, and where in North Carolina you live. The most important thing to confirm with any attorney is that they have direct experience drafting special needs trusts and that they understand North Carolina Medicaid and SSI rules in detail.
A trust that fails to comply with federal and state rules can disqualify the beneficiary from benefits. The cost of that failure is far higher than the cost of getting the trust drafted correctly the first time.
At Johnson Legal, PLLC, we help North Carolina families plan for loved ones with disabilities and protect the benefits they depend on. To talk through your situation and determine whether a special needs trust fits your family, schedule your estate planning consultation today.
Disclaimer: This blog post is provided for informational purposes only and does not constitute legal advice. Every situation is different. For guidance on your specific circumstances, schedule a consultation with a North Carolina estate planning attorney.
Shane T. Johnson is the CEO and Managing Partner of Johnson Legal, an estate planning and business law firm in Wilmington, NC. With years of experience in estate and business law, he has zealously represented clients in various legal matters, including small business formation and purchasing, estate planning, probate, domestic violence, and other legal cases.
Shane received his Juris Doctor from the University of Wyoming and is a member of the North Carolina Bar Association. He has received numerous accolades for his work, including being named among the Best Probate Lawyers in Wilmington by Expertise.com.
