The Problem a Special Needs Trust Solves

Many families across Southwest Ohio have a loved one who depends on Supplemental Security Income, Medicaid, or other means-tested government benefits to cover housing, medical care, and daily living expenses. These programs come with strict financial limits: an individual generally cannot have more than 2,000 dollars in countable resources and still qualify for SSI. That creates a genuine dilemma for parents, grandparents, and other family members who want to leave an inheritance, receive a personal injury settlement, or simply give a gift, without accidentally disqualifying their loved one from the benefits they rely on. A special needs trust, sometimes called a supplemental needs trust, is designed to solve exactly this problem.

How a Special Needs Trust Works

A properly drafted special needs trust holds assets for the benefit of a person with a disability without those assets being counted against that person’s SSI or Medicaid resource limits. The trustee, rather than the beneficiary, controls the funds, and distributions are typically made for things government benefits do not cover, such as uncovered medical or dental care, therapy, education, recreation, personal care attendants, and other quality-of-life expenses. Because the beneficiary never has direct control over the trust principal, the assets are not treated as their own resource for benefits eligibility purposes.

• Trust assets supplement, rather than replace, government benefits

• The trustee has discretion over distributions and must avoid paying for items benefits already cover

• Distributions are typically made directly to service providers rather than as cash to the beneficiary

• A trust protector or successor trustee provision helps ensure long-term, consistent management

First-Party vs. Third-Party Trusts

There are two main types of special needs trusts, and the distinction matters a great deal. A first-party, or self-settled, special needs trust is funded with the disabled individual’s own assets, often from a personal injury settlement or an inheritance received outright. Federal and Ohio law require that these trusts include a Medicaid payback provision, meaning that upon the beneficiary’s death, any remaining trust funds must first reimburse the state for Medicaid benefits paid during their lifetime before anything passes to other heirs. A third-party special needs trust, by contrast, is funded with assets belonging to someone else, such as a parent or grandparent planning ahead. Because the beneficiary never owned those assets, third-party trusts do not require a Medicaid payback, and any funds remaining at the beneficiary’s death can pass to other family members as the trust directs.

• First-party trusts: funded with the beneficiary’s own money, require Medicaid payback provisions

• Third-party trusts: funded by family members, no Medicaid payback required

• Parents and grandparents planning ahead should generally use a third-party trust structure

• Personal injury settlements for a disabled individual often require a first-party trust

Ohio’s STABLE Account Option

Ohio also offers STABLE accounts, the state’s version of a federal ABLE account, which allow an eligible individual with a disability that began before age 26 to save up to a set annual limit in a tax-advantaged account without losing SSI or Medicaid eligibility. STABLE accounts can be a useful complement to a special needs trust, particularly for smaller, more flexible savings, but they have contribution limits and eligibility rules of their own, so most families use them alongside a trust rather than as a complete substitute.

Building the Right Plan for Your Family

Every family’s situation is different, and getting the trust structure wrong can have lasting consequences for a loved one’s eligibility and quality of life. Whether you are planning ahead for a child with a lifelong disability, structuring a personal injury settlement, or updating an existing plan as circumstances change, our attorneys at Yonas & Phillabaum can help you choose and draft the right special needs planning tools. Contact our office today to schedule a consultation and protect your loved one’s future.