Special Needs Trusts: Securing the Future for Your Loved Ones
When you love someone with a disability, your concerns don’t stop at the day-to-day. You think about the long term—the 'what ifs' that keep you up at night. What will happen when you’re no longer here to care for them, advocate for them, or provide for them financially? For many families across North Carolina, a Special Needs Trust is the key to answering those questions with confidence. In this article, we’ll explore how Special Needs Trusts work, why they matter, and how thoughtful legal planning can give your loved one a secure, supported future—no matter what tomorrow brings.
Susan’s Story
Susan had always been a planner. A mother of three, she was used to juggling schedules, advocating for her kids, and keeping things on track. But planning for her son Alex—diagnosed with autism at age 4—felt different. Now 24, Alex was thriving in a group home in Wake County and receiving Medicaid and Supplemental Security Income (SSI). He had structure, support, and a team that understood him.
But late one night, after attending a seminar on estate planning, Susan couldn’t sleep.
“What happens if I’m gone?” she whispered to herself.
She worried that if she left anything to Alex in her will—her house, life insurance, or even a savings account—it could disqualify him from receiving the government benefits he relied on. And even more frightening, what if someone else managed his inheritance poorly or took advantage of him?
That’s when she called our office.
Why a Special Needs Trust Is So Important
If you’re the parent, sibling, or guardian of someone with a disability, you may already know how fragile public benefit eligibility can be. In North Carolina, programs like Medicaid and SSI have strict income and asset limits. Even a small inheritance can trigger a loss of essential benefits—putting housing, healthcare, and stability at risk.
A Special Needs Trust (SNT) is a legal tool designed to protect a disabled individual’s eligibility for these programs while still providing them with supplemental resources to enhance their quality of life.
At our firm, we help families across North Carolina set up Special Needs Trusts that ensure:
- Public benefits remain intact
- Funds can be used for education, hobbies, travel, therapies, and other “extras”
- A trusted person (the trustee) is in charge of managing the money wisely
- There’s a long-term plan in place, even if the caregiver is no longer there
Types of Special Needs Trusts in North Carolina
Not all Special Needs Trusts are created equal—and choosing the right type is critical to making sure your loved one remains eligible for vital benefits like Medicaid and SSI. Here’s a breakdown of the three most common types recognized in North Carolina, along with guidance on when each is appropriate.
1. Third-Party Special Needs Trust (Also called a Supplemental Needs Trust)
Funded with assets that never belonged to the beneficiary (e.g., your money, life insurance proceeds, retirement funds).
Can be established during your lifetime or through your will.
No Medicaid payback requirement—remaining funds can pass to other family members or beneficiaries upon the disabled individual’s passing.
Trustee can be a family member, friend, or professional.
Example: Susan set up a third-party Special Needs Trust funded with her life insurance
2. First-Party Special Needs Trust (Also known as a (d)(4)(A) trust under federal law)
Funded with assets that belong to the person with a disability.
Must be established by a parent, grandparent, legal guardian, or the court.
Beneficiary must be under age 65 when the trust is created and funded.
Must include a Medicaid payback provision.
Example: Layla received a $150,000 settlement. Marcus established a trust to protect her benefits.
3. Pooled Special Needs Trust
Managed by a nonprofit organization.
Available to individuals of any age.
Can be funded with either first-party or third-party assets.
Medicaid payback typically required for first-party pooled trusts.
Example: Tom used a pooled trust to leave $50,000 for his niece with Down syndrome.
ABLE Accounts vs. Special Needs Trusts
Many families ask: “Should we just open an ABLE account instead of creating a Special Needs Trust?”
The short answer? ABLE accounts and Special Needs Trusts are different tools that serve different purposes—and often work best when used together.
Let’s explore how they compare:
What Is an ABLE Account?
An ABLE (Achieving a Better Life Experience) account is a tax-advantaged savings account designed for individuals with disabilities. These accounts allow individuals to save money without affecting their eligibility for means-tested government benefits like Supplemental Security Income (SSI) and Medicaid.
Key Features of ABLE Accounts:
The beneficiary must have a disability onset before age 26
(This increases to age 46 starting in 2026 under the SECURE 2.0 Act.)Annual contribution limit: $18,000 (2024)
Funds grow tax-free
Funds can be used for Qualified Disability Expenses (QDEs)—such as education, housing, transportation, healthcare, assistive technology, employment training, and more
Up to $100,000 can be saved without impacting SSI eligibility
Funds are easy to access for daily living needs
Medicaid payback applies to any funds remaining upon the beneficiary's death
Example:
Sarah, a 23-year-old with autism, uses her ABLE account to pay for transportation, summer programs, and her adaptive laptop. Her parents contribute to the account regularly, knowing it won’t affect her Medicaid eligibility.
What Is a Special Needs Trust (SNT)?
A Special Needs Trust is a more flexible, long-term estate planning tool. It’s specifically designed to hold assets for the benefit of a disabled individual—without counting as a resource for SSI or Medicaid purposes.
There are three types of SNTs:
Third-party SNTs: Funded by family or friends; no Medicaid payback required
First-party SNTs: Funded by the beneficiary’s own assets (e.g., settlement or inheritance); Medicaid payback required
Pooled SNTs: Managed by nonprofits; ideal when a family trustee is not available
Key Features of SNTs:
No age restrictions for third-party trusts
No limit on total assets
Can own property, receive life insurance proceeds, hold retirement accounts, etc.
Distributions must be for the beneficiary’s supplemental needs (not basic support like food or housing, unless structured carefully)
Ideal for inheritances, large gifts, lawsuit settlements, or long-term planning
Trustee is legally responsible for managing and distributing funds according to the trust terms
Example:
John and Lisa create a third-party SNT for their daughter Emily, who has cerebral palsy. They fund it with life insurance and retirement assets to ensure she’s cared for long after they’re gone.
When to Use an ABLE Account
Use an ABLE account for:
Day-to-day expenses that qualify as “disability-related” (especially housing or tech)
Young adults managing some of their own finances
Saving smaller amounts of money from family or work income
Quick access to funds for short-term needs
When to Use a Special Needs Trust
Use a Special Needs Trust when:
You are planning to leave inheritances or life insurance proceeds
You’re concerned about protecting government benefits
You need a long-term management plan for larger assets
You want a trustee to manage money on the beneficiary’s behalf
Best Practice: Use Both
Many families in North Carolina benefit from using both tools together:
A Special Needs Trust can be used to hold and protect large assets—like an inheritance, settlement, or home.
An ABLE account can be used for everyday expenses—funded with smaller gifts or transfers from the trust.
By combining both tools, you maximize flexibility while protecting benefits and providing for both present and future needs.
The Cost of Doing Nothing
We once worked with a family whose daughter Danielle received an outright inheritance from her father’s will. Within months, she lost access to her Medicaid waiver program and housing support. The family had to spend thousands in legal fees to try and fix the situation—while Danielle lost her care team and faced serious emotional stress.
With just a little advance planning, all of it could have been avoided.
Marcus’s Story: Caring for a Sibling
Marcus always looked out for his younger sister, Layla, who was born with cerebral palsy. Their parents had passed away, and Marcus—now in his early 40s—was her primary caregiver.
He worked full-time and was saving for his own retirement, but managing Layla’s care, expenses, and future weighed heavily on him. A friend referred him to our office after hearing about Special Needs Trusts.
Together, we created a trust that held the proceeds of their parents’ life insurance policies, set up a successor trustee to take over when Marcus couldn’t, and coordinated with Layla’s case manager to ensure all her needs were addressed.
Now, Marcus rests easier at night. He’s still Layla’s biggest cheerleader—but he’s no longer carrying the weight of her financial future alone.
Why Work with a North Carolina Special Needs Planning Attorney?
Special Needs Trusts are highly technical. The wrong wording, a misstep in funding, or misunderstanding how distributions work can jeopardize benefits.
At The Happy Lawyer in Garner, we walk families through every step of the process. We create customized trusts that comply with North Carolina law and align with your family’s values and goals. And we’re here for the long haul—not just for the paperwork, but to help guide you through life’s changes.
As part of our elder law services, we also help families plan for long-term care, guardianship, Medicaid eligibility, and more.
You deserve peace of mind. And your loved one deserves the dignity of a secure future.
Ready to Get Started?
If you’ve read this far, chances are you’re carrying the weight of planning for a loved one with special needs—and wondering how to get it right.
Here’s the truth: without the right legal tools, even the most well-meaning gift or inheritance can unintentionally disqualify your loved one from critical benefits like Medicaid or SSI. The good news? That outcome is entirely avoidable.
At The Happy Lawyer, we create personalized estate plans that protect benefits, preserve dignity, and give you real peace of mind—knowing your loved one will be cared for, no matter what.
Don’t wait until a crisis forces you to act. Planning now puts you in control and ensures your family’s future is secure.
Let’s create a roadmap that protects what matters most.
Contact us at (919) 336-4219 to schedule a free Discovery Call to see how we might be able to help you. Or, you can schedule here:
