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A Special Needs Trust (SNT) is a legal arrangement that holds assets for a person with a disability without disqualifying them from means-tested government benefits like Medicaid and SSI. There are three main types: first-party (funded with the beneficiary's own assets, such as an inheritance or lawsuit settlement — must include a Medicaid payback provision), third-party (funded by family members or others — no payback required), and pooled trusts (managed by a nonprofit, accepting funds from multiple beneficiaries). Trust funds can pay for supplemental needs not covered by government benefits — vacations, electronics, education, vehicle modifications, and quality-of-life expenses. An SNT requires careful legal drafting to comply with federal and state rules; improper structure can disqualify the beneficiary from benefits.
Families receiving inheritance, settlements, or gifts for their disabled child need an SNT to protect waiver and Medicaid eligibility. This is a critical estate planning tool for every waiver family.