How to Support a Loved One With a Disability—Without Jeopardizing Benefits

If you love someone with a disability, you’ve probably had this thought at some point: “I want to help them financially—but I’m afraid I’ll make things worse.”

It’s a very real concern. Many people don’t realize that a well-intended gift, inheritance, or life insurance payout can accidentally cost a disabled loved one their government benefits. Programs like Supplemental Security Income (SSI) and Medicaid have strict income and asset limits, and exceeding them—even briefly—can result in lost benefits and complicated reinstatement battles.

That’s where special needs trusts, also known as supplemental needs trusts, come in. When set up correctly, these trusts allow families to provide meaningful financial support while preserving eligibility for essential public benefits.

Let’s walk through how special needs trusts work, why they matter, and how they can be one of the most powerful tools in disability-focused estate planning.

Why Government Benefits Aren’t Enough on Their Own

Programs like SSI and Medicaid are vital lifelines for individuals with disabilities, but they are designed to provide only basic support.

As of recent years, SSI recipients generally must have no more than $2,000 in countable assets (or $3,000 for a married couple). Medicaid eligibility is similarly restrictive. That means even modest savings, an inheritance, or a legal settlement can push someone over the limit. At the same time, these programs often do not cover many quality-of-life expenses, such as:

• Personal care attendants beyond approved hours
• Therapies not fully covered by insurance
• Specialized equipment
• Education, tutoring, or job training
• Travel, recreation, and enrichment
• Technology, internet access, or adaptive devices

Families are left trying to fill the gap—without triggering benefit disqualification. That balancing act is exactly what a special needs trust is designed to handle.

What Is a Special Needs Trust, Really?

A special needs trust (SNT) is a legal arrangement that holds assets for the benefit of a person with a disability without those assets being considered “owned” by the beneficiary for purposes of SSI or Medicaid.

The key idea is this: The trust does not replace government benefits—it supplements them.

The trustee (the person or institution managing the trust) can use trust funds to pay for goods and services that improve the beneficiary’s life, while government programs continue to cover basic medical care and income support.

When properly drafted and administered, assets in a special needs trust are not counted toward benefit eligibility.

The Two Main Types of Special Needs Trusts

While the goal is the same, not all special needs trusts are created for the same situation.

Third-Party Special Needs Trusts

This is the most common and flexible option. A third-party special needs trust is funded with assets that belong to someone other than the disabled beneficiary, such as a parent, grandparent, or other family member.

These trusts are often created as part of an estate plan and funded during life or at death through:

• Gifts
• Inheritances
• Life insurance proceeds

One major advantage is that there is no Medicaid payback requirement. When the beneficiary passes away, remaining trust assets can be distributed to other family members or charities, according to the trust terms.

First-Party Special Needs Trusts

A first-party special needs trust is used when the disabled individual already owns the assets. This commonly happens through:

• Personal injury settlements
• Back pay from Social Security
• An inheritance received outright
• Divorce or family law settlements

Federal law allows these trusts, but with strict rules. The beneficiary must be under age 65 when the trust is created, and the trust must include a Medicaid payback provision, meaning Medicaid is reimbursed for benefits provided during the beneficiary’s lifetime before any remaining funds go elsewhere.

These trusts are invaluable when assets already exist, but they require careful legal handling.

How Special Needs Trusts Protect SSI and Medicaid Eligibility

The success of a special needs trust hinges on two things: how it is written and how it is administered.

SSI and Medicaid rules focus heavily on control. If a beneficiary can demand distributions, control investments, or freely access funds, the trust assets may be counted as theirs. Properly drafted trusts limit that control.

Instead, the trustee has discretion to pay for allowable expenses that do not replace basic support already provided by benefits. For example, the trust might pay for:

• Medical treatments not covered by Medicaid
• Dental care, vision care, or hearing aids
• Transportation and modified vehicles
• Housing-related costs beyond basic shelter
• Education, vocational training, and hobbies
• Vacations, entertainment, and social activities

One important note: distributions for food or shelter must be handled carefully, as they can reduce SSI benefits if not structured properly. This is where experienced legal guidance matters.

Choosing the Right Trustee Matters More Than You Think

The trustee’s role is not just administrative—it’s strategic. A good trustee must understand:

• SSI and Medicaid rules
• Permissible vs. problematic distributions
• Reporting requirements
• Tax responsibilities
• The beneficiary’s personal needs and preferences

Family members can serve as trustees, but many families choose professional or corporate trustees for long-term stability, especially when the trust may last decades.

Poor trust administration can undo even the best drafting, so choosing the right trustee is just as important as creating the trust itself.

Common Mistakes Families Make (and How to Avoid Them)

Many families accidentally undermine benefit eligibility by:

• Leaving assets directly to a disabled beneficiary in a will
• Naming the beneficiary outright on life insurance or retirement accounts
• Giving cash gifts without understanding SSI rules
• Using informal “side accounts” instead of a trust

These mistakes are common—and completely avoidable with proper planning.

A special needs trust should be coordinated with the entire estate plan, including beneficiary designations, powers of attorney, and guardianship considerations.

Why Special Needs Trusts Are About Dignity, Not Just Dollars

At their core, special needs trusts are about more than financial planning. They are about choice, dignity, and quality of life.

They allow families to provide opportunities that government programs simply do not. They allow loved ones with disabilities to enjoy experiences, comfort, and enrichment—without fear that help today will create hardship tomorrow.

When done right, a special needs trust provides peace of mind not just for the beneficiary, but for the entire family.

Final Thoughts: Planning Today Protects Tomorrow

If you have a child, sibling, or loved one with a disability, planning ahead is one of the most meaningful gifts you can give. A special needs trust ensures that your support enhances their life rather than jeopardizing the benefits they rely on.

At DuFault Law, we help families throughout Florida and Georgia design special needs trusts that are legally sound, thoughtfully tailored, and built to last. Whether you are planning ahead or responding to an unexpected inheritance or settlement, experienced guidance makes all the difference.

Plan With Confidence. Protect With Care.

Providing for a disabled loved one should bring peace of mind—not worry. Contact DuFault Law today to ensure your planning supports their future without putting benefits at risk.

• Call us at (239) 422-6400
• Email us at contact@dufaultlaw.com
• Or Visit our Contact Page to schedule a consultation