When you’re caring for a loved one with a disability, it’s your instinct to provide them with every possible resource to ensure their quality of life. But without proper special needs planning, even the most generous gifts can have unintended consequences — especially when it comes to government benefits.
Public programs like Supplemental Security Income (SSI) and Medicaid often form the financial foundation for individuals with disabilities. However, these programs have strict income and asset limits. Something as simple as a well-meaning inheritance or cash gift can disqualify a person from essential services.
Let’s explore how thoughtful planning can help you avoid these risks and protect your loved one’s access to support.
For many people with disabilities, government benefits aren’t just helpful — they’re essential. Medicaid often pays for medical care, therapies, long-term services, and supports that would be unaffordable otherwise. SSI provides monthly income to help meet basic needs.
The problem is, these benefits are means-tested. In other words, if the individual receives too much money or owns too many assets, they may become ineligible. Losing those benefits — even temporarily — can cause real hardship, delays in care, and unnecessary expenses.
That’s why preserving benefit eligibility is one of the top priorities in any effective special needs planning strategy.
Families are often surprised to learn that a simple act of support — such as naming a child with disabilities as the beneficiary of a life insurance policy or leaving them money in a will — can disqualify them from programs like SSI and Medicaid.
It can also happen unintentionally. A personal injury settlement, a back payment from Social Security, or even a cash birthday gift might push the individual over the allowed asset limit. For SSI, this limit is typically just $2,000 in countable resources.
When that happens, benefits can be reduced or suspended until the excess assets are spent down — often with little guidance and lasting impact.
A properly structured special needs trust is the most effective way to provide financial support while protecting government benefits. Instead of giving money directly to the individual, the assets are held and managed by a trustee. Because the trust — not the person — owns the funds, they aren’t counted against benefit eligibility.
The trustee can use the funds to pay for things that improve quality of life, such as educational services, transportation, personal care attendants, or recreational opportunities. These supplemental supports enhance the individual’s lifestyle without replacing what government programs already provide.
However, it’s not as simple as just setting up a trust. Trustees must be cautious. For example, if the trust is used to pay directly for food or rent, it may reduce SSI benefits. These kinds of details can be complex, which is why both the trust and the trustee need proper guidance.
Each benefit program has its own rules, and they can be surprisingly nuanced. SSI, for instance, treats gifting differently than other expenses. According to SSA rules, gifting is considered unearned income, which can trigger dollar-for-dollar benefit reductions (the first $20 is allowable, then afterwards the SSI benefit is reduced one dollar for each dollar received until the benefit is lost). Medicaid eligibility varies by state and may involve periodic reviews that include a close look at trust activity.
These rules can be difficult to interpret, especially for family members who have never encountered them before. Mistakes — even if unintentional — can lead to delayed benefits, audits, or repayment obligations. That’s why planning with an experienced professional is so important.
The best time to start special needs planning is before a crisis arises. When families plan early, they can create a third-party special needs trust that’s ready to receive assets whenever they’re needed — whether that’s through gifts, life insurance, or estate planning.
This kind of proactive approach gives you more control and more flexibility. It also allows you to select trusted individuals to serve as trustees, include detailed guidance in the trust documents, and create safeguards that help ensure your loved one’s needs are met for years to come.
Waiting until an inheritance or settlement appears may limit your options. You might be forced to use a first-party trust, which has more restrictions and often includes a Medicaid payback requirement. With proactive planning, you can avoid these limitations and put a more protective, family-centered structure in place.
No one wants to unintentionally cause a loved one to lose essential support — but without the right tools in place, it happens more often than most families realize. Fortunately, with proper planning, you can avoid the benefits trap and create a plan that supports your loved one’s independence and security.
A special needs trust, managed by an informed trustee and created with guidance from a skilled attorney, is one of the best ways to ensure your family member is protected — both financially and medically — for the long term. Before you make a costly decision, check out our webinar on the biggest special needs trust planning errors to avoid.
Not all special needs trusts are the same. Learn when to use a first-party vs. third-party trust and how to plan effectively for your loved one’s future.
Not all special needs trusts are the same. Learn when to use a first-party vs. third-party trust and how to plan effectively for your loved one’s future.
Learn how to choose the best trustee for a special needs trust. Explore key traits, trustee types, and expert tips to support your special needs planning goals.