Leaving an inheritance to a family member with a disability requires more planning than simply naming that person in a will. A direct inheritance may increase the recipient’s countable assets and interfere with eligibility for means-tested government programs, including Supplemental Security Income and certain Medicaid benefits.
Special needs planning provides ways to preserve an inheritance for the beneficiary’s benefit while protecting access to essential services. The appropriate arrangement depends on the source of the money, the beneficiary’s public benefits, and how the funds are expected to be used.
Why a Direct Inheritance May Create Problems
Supplemental Security Income, commonly called SSI, provides monthly assistance to qualifying people with limited income and resources. In 2026, the maximum federal SSI payment is $994 per month for an eligible individual, although the actual payment may be lower depending on income and living arrangements.
More importantly, the Social Security Administration’s resource limit is generally only $2,000 for an individual and $3,000 for a couple. Countable resources can include money in checking and savings accounts, investments, and certain property.
If a person receiving SSI inherits $50,000 directly, the inheritance may place that person over the $2,000 resource limit. Benefits could be suspended until the excess money is spent in a permitted manner. Medicaid eligibility may also be affected because some Medicaid programs use financial eligibility rules connected to SSI.
Not every disability benefit has an asset limit. Social Security Disability Insurance, or SSDI, is based primarily on the recipient’s work history rather than financial need. Medicare also does not ordinarily impose the same resource restrictions. Families should therefore identify the beneficiary’s exact programs before selecting a planning strategy.
Using a Third-Party Special Needs Trust
A third-party special needs trust is commonly used when parents, grandparents, siblings, or other individuals want to leave assets for a person with a disability. It is called a third-party trust because the money originally belongs to someone other than the beneficiary.
Instead of leaving property directly to the person, the family member directs it into the trust. A trustee then manages and distributes the assets according to the trust’s terms.
When properly established and administered, trust property generally is not treated as an available resource belonging directly to the beneficiary. The funds can supplement government assistance rather than replace it.
What Can the Trust Pay For?
A special needs trust may cover expenses that improve the beneficiary’s health, independence, comfort, or quality of life. Depending on the circumstances, permitted expenses may include:
- Education and job training
- Transportation and vehicle expenses
- Computers, phones, and assistive technology
- Uncovered medical or dental treatment
- Recreation and travel
- Personal care services
- Household furnishings
- Legal, accounting, and trustee fees
Payments involving food, shelter, or cash given directly to the beneficiary can affect SSI payments. The Social Security Administration explains that direct cash payments from a trust generally reduce SSI, while certain shelter payments may also cause a benefit reduction. Trustees must understand these rules before authorizing distributions.
First-Party Trusts Serve a Different Purpose
A first-party special needs trust holds assets that already belong to the person with a disability. These funds might come from a personal injury settlement, a direct inheritance, accumulated savings, or a divorce award.
Federal law permits certain first-party trusts to protect eligibility when specific requirements are satisfied. The beneficiary generally must be disabled and under age 65 when the trust is established and funded. Unlike a typical third-party trust, a first-party trust usually must contain a Medicaid repayment provision.
That provision requires remaining trust assets to be used, after the beneficiary’s death, to reimburse the state for qualifying Medicaid expenses. Any balance left after repayment may pass to other beneficiaries named in the document.
Because first-party and third-party trusts receive different treatment, combining their assets in one trust can produce unintended results.
Pooled Special Needs Trusts
A pooled trust is established and administered by a nonprofit organization. Although the organization combines funds for investment and administrative purposes, it maintains a separate account for each beneficiary.
Pooled trusts may be useful when the amount involved does not justify creating and managing an individual trust. They can also provide access to professional administration. Each program has its own enrollment agreement, fees, distribution procedures, and rules concerning funds remaining after the beneficiary’s death.
Families should examine those terms carefully rather than assuming every pooled trust operates in the same way.
ABLE Accounts as a Complementary Tool
An Achieving a Better Life Experience account, commonly called an ABLE account, is a tax-advantaged savings option for eligible individuals with disabilities. Georgia’s program is known as the Georgia STABLE Program.
Money in an ABLE account can pay for qualified disability expenses, including housing, education, transportation, healthcare, employment support, and assistive technology. The beneficiary may also have more direct control over the account than would be possible with a traditional special needs trust.
For SSI purposes, the first $100,000 in an ABLE account is generally excluded from countable resources. If the balance above $100,000 causes the recipient to exceed the SSI resource limit, SSI payments may be suspended. According to the Social Security Administration’s ABLE guidance, Medicaid may continue if the individual remains otherwise eligible.
An ABLE account is not always a substitute for a trust. Annual contribution limits, eligibility requirements, and Medicaid repayment provisions may apply. Many plans use a trust for long-term assets and an ABLE account for everyday qualified expenses.
Coordinating the Entire Estate Plan
Creating a trust is only one part of effective planning. Wills, life insurance policies, retirement accounts, payable-on-death accounts, probate and investment accounts must use compatible beneficiary designations.
A carefully drafted trust may offer little protection if a life insurance policy still names the person with a disability directly. Relatives who intend to leave gifts should also understand how to direct assets to the trust.
Families exploring estate-planning options for a loved one with disabilities should consider several practical decisions:
- Who will serve as trustee?
- Who can replace the trustee if necessary?
- What expenses should the trust prioritize?
- Who receives remaining assets after the beneficiary’s death?
- How will the plan adapt if benefits rules change?
- Who will advocate for the beneficiary’s personal needs?
The trustee should be financially responsible, organized, and capable of applying complicated benefit rules. Families may select an individual, a professional fiduciary, or a combination of both.
Adding a Letter of Intent
A letter of intent is a nonbinding document describing the beneficiary’s routines, medical history, preferences, relationships, communication methods, and long-term goals. It can help future trustees, caregivers, and guardians understand matters that do not belong in a formal trust agreement.
The letter should be reviewed periodically, particularly after changes in health, housing, education, employment, or caregiving arrangements.
Key Insights
Special needs planning allows an inheritance to support a person with a disability without automatically placing essential means-tested benefits at risk. A third-party trust generally holds family assets, while a first-party trust manages money already belonging to the beneficiary and usually includes Medicaid repayment requirements.
ABLE accounts can provide additional flexibility, but contribution, balance, and spending rules must be considered. The plan is most effective when the trust, will, beneficiary designations, trustee selection, and practical care instructions work together as one coordinated structure.