Special Needs Planning FAQs

A special needs trust holds money for a person with a disability so it can improve their life without counting against benefits like SSI and Medicaid. New York law calls it a supplemental needs trust.

SSI (Supplemental Security Income) and Medicaid have strict asset limits. If a person with a disability owns more than the limit, they can lose benefits. A special needs trust solves this problem. A trustee, the person in charge of the trust, holds the money and decides how to spend it. Because the beneficiary does not control the funds, the law does not treat them as the beneficiary’s own. New York’s rules for these trusts are in Estates, Powers and Trusts Law section 7-1.12. Under that law, money properly held in the trust is not counted as an available resource for government benefit programs. The trust is meant to add to benefits, not replace them.

Setting up the trust early means it is ready the day money arrives.

In practice, yes. “Supplemental needs trust” is the term New York law uses, and “special needs trust” is the common national term.

You will see both names, and they usually describe the same tool. The word supplemental explains the purpose. The trust supplements, or adds to, what government programs provide. It does not replace them. What matters more than the name is how the trust is written. A trust must follow specific rules in New York law and in federal benefit rules to protect eligibility. A general family trust that lets the trustee pay for the beneficiary’s support may not work for a person on SSI or Medicaid. The wording of the trust document is what protects the beneficiary, so the label on the cover page matters far less than the language inside.

It can. If a person on SSI or Medicaid inherits money directly, the inheritance can push them over the asset limits and stop their benefits.

In 2026, the SSI resource limit is $2,000 for an individual. New York Medicaid for people who are aged, blind, or disabled has a 2026 resource limit of $33,038 for an individual. An outright inheritance counts toward these limits. The beneficiary may lose benefits until the money is spent down. Leaving the money to a properly drafted special needs trust keeps it out of these counts. This applies to wills, and also to life insurance and retirement accounts that name a beneficiary. Each one should point to the trust, not to the person.

Illustration: A Queens father leaves $100,000 directly to his adult son, who receives SSI and Medicaid. The son is now over both limits. If the father had named a special needs trust instead, the same $100,000 could pay for the son’s needs while his benefits continue.

Checking every beneficiary form now prevents an avoidable loss later.

A third-party trust holds money that comes from someone else, such as a parent or grandparent. A first-party trust holds the disabled person’s own money, such as an inheritance they received directly or a lawsuit settlement.

The source of the money decides the type. Third-party trusts are the most common tool for parents. They do not have to repay Medicaid when the beneficiary dies, so whatever is left can go to other family members. First-party trusts follow stricter federal rules. They must be set up while the beneficiary is under age 65. They can be set up by the person with the disability, a parent, a grandparent, a legal guardian, or a court. When the beneficiary dies, money left in a first-party trust must first repay Medicaid for the care it provided. Mixing the two kinds of money in one trust can cause problems, so they are usually kept separate.

Knowing where each dollar will come from lets you choose the right trust from the start.

A special needs trust can pay for things that improve the beneficiary’s quality of life beyond what benefits cover. Common examples include education, therapies, equipment, travel, recreation, and services Medicaid does not pay for.

The trustee has discretion, which means the trustee decides what to pay for and when. Payments usually go directly to the provider or store rather than to the beneficiary as cash. Some payments can still affect benefits, so how a payment is made matters as much as what it buys. A careful trustee checks how SSI and Medicaid treat each type of payment before making it. Keeping receipts and clear records is also part of the job.

Illustration: A trust in Brooklyn holds $250,000 for a young woman with autism. Each year, the trustee pays $4,000 for a summer program and pays her music therapist directly. The trustee also buys her a $1,500 laptop for school. Her Medicaid coverage continues.

The trustee should be organized, honest, and willing to learn the benefit rules, or should be a professional who already knows them. Many families name a relative plus a backup, or pair a relative with a professional.

The trustee manages money, keeps records, handles the trust’s tax filings, and decides on payments. A trustee’s mistake can cost the beneficiary benefits. Parents often serve first, then hand off to a sibling, relative, or friend. Some families worry that asking one child to manage money for a brother or sister will strain the relationship. Naming a professional trustee to handle investments, alongside a family member who knows the beneficiary well, is one way to protect both the money and the relationship. Name at least one successor trustee, so there is no gap if your first choice cannot serve.

Talking with your chosen trustee now gives them time to prepare, or to say no while you can still choose someone else.

In 2026, a person on SSI can have up to $2,000 in countable resources, or $3,000 for a couple. The maximum federal SSI payment in 2026 is $994 a month for an individual.

Countable resources include cash, bank accounts, and most investments. Some things do not count. Money in a properly drafted special needs trust is one of them. For SSI, up to $100,000 in an ABLE account is also excluded. The $2,000 limit is not adjusted for inflation, so it buys less each year. New York adds a state supplement to the federal payment for some recipients. In 2026, the New York supplement for an individual living alone is $87 a month.

Illustration: A Bronx man on SSI has $1,800 in his checking account. His aunt gives him $1,000 for his birthday. His countable resources are now above $2,000, which can stop his SSI payment until he is back under the limit. A gift to his special needs trust or ABLE account would have avoided this.

In 2026, New York Medicaid for people who are aged, blind, or disabled has a resource limit of $33,038 for an individual and $44,796 for a couple. The 2026 monthly income level is $1,836 for one person.

New York’s limits are much higher than SSI’s, so some people qualify for Medicaid even if they do not qualify for SSI. The asset limit applies to the aged, blind, and disabled category. Many adults under 65 qualify for Medicaid under different rules that have no resource test at all. Which category applies depends on the person’s situation. The state updates these figures each year. Assets held in a properly drafted special needs trust do not count toward the limit.

Illustration: A Staten Island woman with a disability, age 40, has $40,000 in savings. She is about $7,000 over the 2026 limit. Placing the excess in a first-party special needs trust can protect her eligibility while keeping the money available for her needs.

It depends on the type. A first-party trust must repay Medicaid from what is left when the beneficiary dies. A third-party trust funded by parents or others does not.

Federal law allows first-party trusts on the condition that the state is repaid for the Medicaid care it provided. This repayment happens only after the beneficiary dies, and only from what is left in the trust. Anything remaining after repayment can pass to the people named in the trust. Third-party trusts work differently. The money never belonged to the beneficiary, so there is no payback requirement. Leftover funds can go to siblings, other relatives, or a charity. This is one reason parents usually leave money to a third-party trust instead of to the child directly.

Illustration: Parents leave $300,000 to a third-party trust for their daughter. When she dies many years later, $120,000 remains. The trust directs that money to her brother, with no Medicaid repayment.

A pooled trust is a special needs trust run by a nonprofit organization. Each person has a separate account, but the nonprofit invests the money together.

Pooled trusts are a federal option for people with disabilities who need to protect their own money. An account can be opened by the person with the disability, a parent, a grandparent, a legal guardian, or a court. A pooled trust can be useful when no family member is able or willing to serve as trustee. It can also make sense when the amount is too small to justify a separate trust. The nonprofit handles investments, records, and payments. Each nonprofit sets its own fees and rules, so it is worth comparing more than one. What happens to money left in an account at death depends on federal law and the trust’s terms. The rules for people age 65 and older are complex, and we review them case by case.

An ABLE account is a tax-advantaged savings account for a person with a disability. Starting January 1, 2026, a person qualifies if their disability began before age 46.

Before 2026, the disability had to begin before age 26. The new rule looks at when the disability started, not how old the person is today. For SSI, the first $100,000 in an ABLE account does not count toward the $2,000 resource limit. Amounts above $100,000 do count. ABLE accounts are offered through state programs, and yearly contribution limits apply. They can be a practical way for a person with a disability to save and pay for everyday needs without losing benefits.

Illustration: A 55-year-old Manhattan woman developed multiple sclerosis at 40. Under the old rule, she could not open an ABLE account. In 2026, she can, because her disability began before age 46.

If someone in your family was shut out under the old rule, now is a good time to look again.

Many families use both. An ABLE account works well for everyday spending and smaller savings, and a special needs trust works better for larger sums such as an inheritance.

The two tools do different jobs. An ABLE account has yearly contribution limits, and for SSI only the first $100,000 is protected. A third-party special needs trust has no such cap. It can also leave leftover funds to other family members. In exchange, a trust needs a trustee and more paperwork. A common approach is for the trust to hold the larger amount while the trustee moves smaller sums into the ABLE account as needed. This gives the person with a disability more day-to-day control while keeping most of the money protected.

Illustration: Parents leave $400,000 to a third-party trust for their son. Each year, the trustee moves a few thousand dollars into his ABLE account. He uses it to pay for transportation and daily expenses.

The best time is now, while you are healthy and can make choices calmly. A trust can be created during your lifetime and named in your will and beneficiary forms, so it is ready whenever money arrives.

Many families wait until a child turns 18 or a parent gets sick. That leaves little time. A third-party trust can be set up at any point in the child’s life. If a first-party trust is needed for the person’s own money, it must be set up before age 65. Creating the trust early also lets grandparents and other relatives name it in their own plans. Without a trust in place, a well-meaning gift can disrupt benefits.

Illustration: Manhattan parents set up a third-party trust when their daughter is 6. They name the trust in their wills and life insurance. When her grandmother dies 10 years later, her $50,000 gift goes straight into the trust, and nothing changes for the daughter’s benefits.

Yes. Grandparents can leave money to a grandchild with a disability without hurting benefits by leaving it to a special needs trust instead of to the grandchild directly.

Grandparents have two main options. They can set up their own third-party trust for the grandchild. Or, if the parents already have a trust, the grandparents can name that trust in their will or beneficiary forms. The second option is often simpler, because one trust and one trustee handle everything. The key is coordination across generations. A grandparent who splits an estate equally among grandchildren, without a trust for the grandchild with a disability, can cause that grandchild to lose SSI or Medicaid. The trust’s exact name should appear in the grandparent’s documents.

Illustration: A grandmother leaves her estate equally to four grandchildren. One grandson receives SSI. His $75,000 share goes to the special needs trust his parents created, and his benefits continue.

One family conversation can prevent a costly mistake.

Often, yes. Even if your family can pay for care privately, a special needs trust provides ongoing management, protects the money from misuse, and keeps the option of public benefits open.

Some families plan to cover every cost themselves, and that may work for many years. Keeping benefits available does not require using them. It simply keeps the choice open for the future. A trust also helps protect a vulnerable adult from people who may try to take advantage of them. It lets you decide who manages the money and how it is used, instead of leaving those choices to chance or to a court. A trust can also be part of a larger estate plan that treats all of your children fairly. In our experience, a clear plan for one child often reduces tension among siblings later.

Not always. At 18, your child is legally an adult, and you can no longer make medical or financial decisions for them automatically. Guardianship is one option, but New York also offers less restrictive choices.

Parents of a person with an intellectual or developmental disability can ask the Surrogate’s Court for guardianship under Article 17-A of the Surrogate’s Court Procedure Act. Another type of guardianship falls under Mental Hygiene Law Article 81. Guardianship removes some or all of a person’s legal right to make their own decisions, so it deserves careful thought. Some young adults need a guardian. Others can make their own decisions with the right support and documents in place. The right answer depends on your child’s abilities, not on a diagnosis alone.

Starting the conversation a year or so before your child turns 18 gives you time to choose the best fit.

Alternatives include a power of attorney, a health care proxy, and a supported decision-making agreement. These work when the person can understand and sign them.

A power of attorney lets a trusted person handle financial matters. A health care proxy names someone to make medical decisions if the person cannot. Both require the person to understand what they are signing. New York passed a law in 2022, Mental Hygiene Law Article 82, recognizing supported decision-making agreements. Under such an agreement, the person chooses trusted supporters who help them understand options and make their own decisions. The person keeps the final say and can change or end the agreement at any time. The law states that such an agreement may show that a less restrictive alternative to guardianship is in place.

Illustration: A 19-year-old in Brooklyn with Down syndrome signs a health care proxy naming her mother. She also signs a supported decision-making agreement with her mother and older brother. She makes her own choices with their help, without guardianship.

You can decide this now. A successor trustee manages the money, and a standby guardian, a health care agent, or trusted supporters can help with personal and medical decisions.

Two kinds of decisions need a plan: money and personal care. For money, your special needs trust should name successor trustees who step in when you can no longer serve. For personal and medical decisions, the answer depends on your child’s situation. If you are a guardian under Article 17-A, New York law provides for a standby guardian who can take over. If your child has signed a health care proxy, power of attorney, or supported decision-making agreement, those documents can name backups too. Many families also write a letter of intent. This is a non-legal document that describes your child’s routines, doctors, preferences, and what makes them happy.

Illustration: Parents name the father’s sister as standby guardian and successor trustee, with a professional co-trustee for investments. They write a 10-page letter of intent and update it every few years.

Naming people now, and telling them, gives your child continuity instead of a court process at an already hard time.