Special Needs Law: SSI, Medicaid, Trusts, and ABLE Accounts
Special Needs Law tests planning for a client with a disability who depends on means-tested benefits, chiefly SSI and Medicaid. The exam focuses on which trusts and accounts count as resources, when distributions become income, and how to draft and administer a trust without destroying eligibility.
Benefit baseline
SSI pays a federal benefit rate plus any state supplement to aged, blind, or disabled people with limited income and resources. The resource limit is $2,000 for an individual and $3,000 for a couple. Trusts are evaluated under POMS SI 01120.200 et seq., while Medicaid applies its own trust provisions at 42 U.S.C. §1396p(d).
Trust choices
- Third-party special needs trust: funded with someone else's assets, usually through a will or revocable trust. No Medicaid payback and no age limit; the trust must be discretionary and limited to supplemental needs.
- First-party trust under §1396p(d)(4)(A): funded with the beneficiary's own assets, such as an inheritance or personal injury settlement. The beneficiary must be under 65; the trust must be established by a parent, grandparent, guardian, or court; and it must contain Medicaid payback language.
- Pooled trust under (d)(4)(C): managed by a nonprofit, with a separate subaccount for each beneficiary and payback unless the charity retains the remainder.
- Miller or qualified income trust under (d)(4)(B): holds income only, for applicants over the state income cap.
- ABLE account under §529A: disability onset before age 26 (rising to 46 in 2026); contributions capped at the annual gift-tax exclusion; SSI excludes up to $100,000.
Worked example
Grandmother's will leaves $150,000 outright to a granddaughter receiving SSI. The inheritance is a countable resource and terminates SSI until spend-down. If the will instead creates a discretionary third-party special needs trust with a spendthrift clause and remainder to siblings, the trust is not a resource, the trustee controls distributions, and no payback is required. Had the $150,000 been the granddaughter's own settlement, a first-party trust would be required: under 65, court-established, with payback language.
Traps
Funding a supposed third-party trust with the beneficiary's own money converts it into a first-party trust and triggers payback. Omitting payback language or the under-65 rule defeats the (d)(4)(A) exception. Trustee checks paid directly to the beneficiary are countable income; in-kind payments for food or shelter can reduce SSI by the presumed maximum value. ABLE accounts do not replace a trust for large sums.
Exam focus
Know which exception fits the funding source, who may establish the trust, the age rule, and the remainder beneficiary.