Special Needs Trusts

Special Needs Trusts — Pennsylvania FAQs

What is the difference between a first-party and a third-party special needs trust?

A third-party SNT is funded with someone else's money — usually a parent's or grandparent's — and has no Medicaid payback: whatever remains at the beneficiary's death goes to the family members you name. A first-party SNT, authorized by 42 U.S.C. § 1396p(d)(4)(A), holds the beneficiary's own assets, typically a personal-injury settlement or an unexpected inheritance, must be established before the beneficiary turns 65, and must repay the Commonwealth for Medical Assistance paid on their behalf at death. Whenever the choice exists, families should direct gifts and bequests into a third-party trust.

Does a special needs trust affect SSI or Medicaid eligibility?

A properly drafted SNT does not count as a resource, so the beneficiary keeps SSI and Medical Assistance. The trustee must never distribute cash directly to the beneficiary; payments go to third parties for goods and services the programs do not cover — therapies, dental and vision care, education, travel, electronics, a vehicle. Distributions for food or shelter reduce the SSI payment under the in-kind support and maintenance rules, so a good trustee coordinates those carefully.

Who should serve as trustee of a special needs trust?

Someone who will still be capable in thirty years and who understands benefits rules. A family member knows the beneficiary but may not know that a $200 cash gift can suspend SSI; a corporate trustee knows the rules but charges fees and may lack context. The common solution is a corporate or professional trustee paired with a family trust protector or care advocate who can direct and, if necessary, replace the trustee.

What happens to money left in the trust when the beneficiary dies?

It depends on the type. A first-party (d)(4)(A) trust must reimburse Pennsylvania's Medical Assistance program for lifetime benefits before anything passes to remainder beneficiaries — the payback provision. A third-party trust has no payback; the balance passes to the siblings, charities, or other remaindermen the family named when the trust was created. This is the single strongest reason to route inheritances into a third-party SNT rather than leaving them to the beneficiary outright.

How does an ABLE account fit with a special needs trust?

They complement each other. A Pennsylvania ABLE account lets the beneficiary hold up to $100,000 without affecting SSI and spend it on qualified disability expenses, including food and housing, with the beneficiary keeping direct control. Annual contributions are capped, and Medicaid can claim against the balance at death. Families typically use the ABLE account for routine spending and the special needs trust for larger, long-term assets.