Special Needs Trusts and ABLE Accounts: Leaving Money Without Losing SSI or Medicaid

Because SSI is a means-tested program with a resource limit of $2,000 for an individual and $3,000 for a couple, a figure Congress has not changed since 1989 (SSA POMS SI 01110.003). Anyone whose countable resources exceed the limit on the first of a month gets no SSI for that month. An inheritance of $25,000, let alone $250,000, ends the check.

The larger loss is usually Medicaid. In most states, receiving SSI makes a person eligible for Medicaid, often automatically; a minority of states, the so-called 209(b) states, apply their own, stricter tests (SSA POMS SI 01715.010). For an adult with a lifelong disability, Medicaid pays for far more than doctor visits. It often funds the home and community-based waiver services, supported living staff, day programs and long-term care that no private insurer sells. Waiting lists for those services can run for years, so losing eligibility can cost a place that is hard to get back.

The SSI check itself is modest, $994 a month for an individual in 2026 (SSA POMS SI 00835.901). The point of planning is keeping the Medicaid that comes with it, and making sure your money pays for what benefits never cover.

Social Security Disability Insurance and Childhood Disability Benefits have no asset test, but many people on them also rely on Medicaid, which often does. If there is any chance your child or grandchild will need SSI or Medicaid, plan as if they will.

A third-party trust holds money that never belonged to the person with the disability; a first-party trust holds their own money; and a pooled trust is a sub-account in a trust run by a nonprofit. Social Security does not count a trust as a resource when the beneficiary cannot direct the trustee to pay them and cannot revoke the trust (SSA POMS SI 01120.200). Third-party trusts rely on that general rule. The other two rely on statutory exceptions written into the Medicaid law, at 42 U.S.C. 1396p(d)(4)(A) and (C) (Cornell LII), which is why they carry a Medicaid payback.

Two details matter for the first-party trust. Since the 21st Century Cures Act of December 13, 2016, a disabled person with capacity can set up their own; before that, only a parent, grandparent, guardian or court could. And the trust must be established before the beneficiary turns 65; money added after 65 does not qualify for the exception (SSA POMS SI 01120.203). The pooled trust has no age limit, but a transfer by someone 65 or older can be treated as a gift for less than fair value and cause a period of ineligibility, depending on state rules.

A third-party special needs trust, in nearly every case. Your money never becomes the beneficiary's, so there is no Medicaid payback, no age limit, and you decide who inherits what is left. The trust gives the trustee full discretion to spend for the beneficiary's benefit and says plainly that it is meant to supplement, not replace, public benefits.

You can create it now as a stand-alone trust, or write it into your will or revocable living trust so it springs into existence at your death. A stand-alone trust has one advantage for families: other relatives can name it too. If your daughter and son-in-law already have a special needs trust for their son, the simplest plan for grandparents is usually to leave his share to that trust rather than create a second one with a second trustee and a second tax return. Ask for a copy, confirm it is a third-party trust, and have your lawyer check the wording before you name it.

If you do not know yet whether someone will need benefits, ask your attorney for a discretionary trust the trustee can convert to a special needs trust. Leaving the share outright and hoping does not work. Our estate planning basics guide shows how each kind of asset passes, and the Estate Planning Worksheet is a good place to list every account and who it is meant for.

For a third-party trust, it goes to whoever you named as remainder beneficiaries. For a first-party trust, the state comes first: the trust must repay all Medicaid benefits paid on the person's behalf, up to what is left in the trust, before anyone else is paid. Before reimbursing the state, a first-party or pooled trust may pay only taxes owed because of the death and reasonable costs of winding up the trust. Funeral expenses, debts owed to others, inheritance taxes and payments to heirs cannot come first (SSA POMS SI 01120.203).

Decades of waiver services can cost more than a trust holds, so assume little of a first-party trust will reach family. A pooled trust may keep some or all of a member's balance, as its terms allow, and repays the state from the rest. Because funeral costs cannot come first after death, trustees commonly prepay an irrevocable funeral contract during the beneficiary's life.

Almost anything paid directly to the provider; shelter costs a little and cash costs a lot. Social Security treats cash from the trust as unearned income, and money put on a debit card the beneficiary owns the same way. Gift cards that can buy food or shelter, such as a Visa or grocery card, are unearned income too (SSA POMS SI 01120.200). Unearned income reduces SSI roughly dollar for dollar.

Shelter is allowed but costs something. When the trust pays rent, mortgage, property taxes or utilities, the beneficiary receives in-kind support and maintenance. Social Security values it at no more than the presumed maximum value, one-third of the federal benefit rate plus $20 (SSA POMS SI 00835.300), which is $351.33 a month in 2026. So the most SSI can fall because the trust pays the rent is $351.33, leaving $642.67. When rent is $1,500 a month, paying it from the trust and accepting the smaller check is often the right trade; the trustee should run the numbers rather than avoid shelter on principle.

Food is no longer part of that calculation. Social Security removed food from in-kind support and maintenance effective September 30, 2024 (SSA final rule). Groceries and restaurant meals paid directly by the trust no longer reduce SSI. Many articles, and some older sections of SSA's own manual, still say “food or shelter”; the regulation is what controls.

The last row is the most useful. A trustee can move money into the beneficiary's ABLE account without reducing SSI, and the beneficiary can then pay rent from the ABLE account without the shelter reduction, as the ABLE section explains. Medicaid programs apply their own rules and some states add conditions, so a trustee in a 209(b) state should check before relying on SSI treatment alone.

Someone who will outlive you, understands the benefit rules or will pay someone who does, and gets along with the beneficiary. That combination is rare in one person, which is why many families use two: a sibling or cousin as co-trustee who knows the beneficiary, alongside a professional trustee, a trust company or a pooled trust nonprofit that handles investing, tax returns, record-keeping and SSA reporting.

A family trustee costs little but takes on decades of work: a trust tax return each year, reports to Social Security, and the judgment to refuse requests that would cost benefits. A professional trustee charges an annual fee, often a percentage of assets with a minimum. Either way, name at least two successors, and consider a trust protector who can replace the trustee and update administrative terms when benefit rules change, as they did for food in 2024 and ABLE in 2026.

Name the trust as the IRA's beneficiary, and have your lawyer draft it as an applicable multi-beneficiary trust so it can take distributions over the beneficiary's life expectancy. Under the SECURE Act, most heirs must empty an inherited IRA within 10 years, but an eligible designated beneficiary can stretch it, and that group includes anyone disabled or chronically ill on the date of your death (IRS final regulations, 2024). Our inherited IRA guide covers the 10-year rule in detail.

An ordinary accumulation trust with several beneficiaries falls under the 10-year rule. The fix Congress wrote is the applicable multi-beneficiary trust. The type that fits special needs planning, which the regulations call type II, provides that no one other than the disabled or chronically ill beneficiary has any right to the IRA money until that person dies. The trust then uses their life expectancy. SECURE 2.0 section 337 added that the remainder beneficiary can be a charity, which the original law did not allow (89 FR 58886).

Three rules from the 2024 final regulations are easy to miss:

• •Social Security's finding counts. If Social Security has found the beneficiary disabled as of your death, they are treated as disabled for IRA purposes. Without that finding, the trustee must show the tax-law standard is met; for a beneficiary under 18, a comparable standard of marked and severe functional limitations applies.
• •There is a paperwork deadline. Documentation of the disability or chronic illness, and a copy of the trust or the required certifications, must reach the IRA custodian by October 31 of the year after the year of your death.
• •Annual distributions still apply. The trust must take a required distribution each year based on the beneficiary's life expectancy from IRS Table I (IRS Pub. 590-B). It can keep that money inside the trust; it does not have to hand it to the beneficiary.

Taxes are the other half. Income a trust keeps is taxed at compressed rates: in 2026 the 37% bracket starts at $16,000 of trust income (IRS Rev. Proc. 2025-32). Two provisions soften that. A trust whose beneficiaries are all disabled, as determined by Social Security, can qualify as a qualified disability trust and deduct $5,300 in 2026 instead of the usual $100. And income the trustee spends for the beneficiary is generally taxed on the beneficiary's own return, where a $16,100 standard deduction covers much of it. A Roth IRA avoids the problem entirely, since qualified distributions are tax-free to the trust, which makes Roth conversions before RMDs worth a second look for the share you plan to leave to a special needs trust.

By making the trust, not the person, the named recipient on every account and document that could otherwise reach them. That means four places, and the beneficiary forms matter most because they override your will:

• •Beneficiary designations on IRAs, 401(k)s, annuities and life insurance: name the trust for that person's share. Check contingent beneficiaries too; many forms default to “my descendants, per stirpes,” which can send a share straight to a grandchild on SSI.
• •Your will or revocable living trust: direct that share to the special needs trust, and add a clause sending any gift to a person on means-tested benefits into a special needs trust instead of outright.
• •Transfer-on-death and payable-on-death accounts: the same rule as beneficiary forms.
• •Life insurance: a policy payable to the trust, often a survivorship (second-to-die) policy for a married couple, guarantees a funding amount regardless of what your portfolio does. If estate tax is a concern, an irrevocable life insurance trust can own the policy and name the special needs trust as its beneficiary.

Size life insurance to the gap between what the trust must pay for over the beneficiary's lifetime and what your estate will already leave. Our life insurance guide explains policy types, and the Life Insurance Calculator helps size the need. Gifts during life also work, either into a stand-alone third-party trust or, in smaller amounts, into an ABLE account. Our guide to gifting to children and grandchildren covers the $19,000 annual exclusion and when a gift tax return is needed.

An ABLE account is a tax-advantaged savings account, under section 529A of the tax code, that a person with a disability owns and can spend on everyday needs without losing SSI or Medicaid. It is run through a state program, and earnings are tax-free when spent on qualified disability expenses.

Who qualifies. From January 1, 2026, the blindness or disability must have begun before age 46; before then the cutoff was 26. A person qualifies by receiving SSI or Social Security disability benefits based on that disability, or by a signed disability certification backed by a physician's diagnosis (SSA POMS SI 01130.740). Each person may have only one ABLE account, but can open it through any state's program that accepts out-of-state residents.

How much can go in. Total contributions from everyone combined are capped at $20,000 for 2026 (IRS Rev. Proc. 2025-32). That is no longer the same as the $19,000 gift tax exclusion: the 2025 tax law changed how the ABLE limit is indexed. A beneficiary who works and whose employer plan received no contributions for them can add more of their own pay under the ABLE-to-Work rule, up to the lesser of their compensation or the one-person federal poverty line, which was $15,650 in the 48 contiguous states for 2025 (IRS Pub. 907).

How SSI and Medicaid treat it. Social Security ignores the first $100,000 of the balance. Above that, the excess counts as a resource; if it pushes the owner over the $2,000 limit, SSI payments are suspended, not terminated, and the owner keeps SSI-based Medicaid for as long as the suspension lasts (SSA POMS SI 01130.740). Distributions are not income. Money spent on qualified expenses other than housing is not counted even if held for a few months. Money withdrawn for housing is fine if spent in the month it comes out; any part still held on the first of the next month counts as a resource.

What it pays for.Qualified disability expenses are broad: education, housing, transportation, employment support, assistive technology, personal support services, health, financial and legal fees, funeral and burial, and basic living expenses. Food counts as a basic living expense. This is the ABLE account's great advantage over a trust: rent and groceries paid from an ABLE account do not reduce SSI at all.

When the owner dies. After outstanding qualified expenses are paid, the state can file a claim for Medicaid benefits paid since the account opened, and the remaining balance must reimburse it (SSA POMS SI 01130.740). This is the ABLE account's main disadvantage and the reason not to park a large inheritance in one.

529-to-ABLE rollovers. Money in a 529 college savings plan can be rolled into an ABLE account for the same beneficiary or a family member, within the annual contribution limit. The rule was scheduled to expire at the end of 2025; the 2025 tax law made it permanent (Public Law 119-21, section 70117). If you funded a 529 for a grandchild before a diagnosis, this is a way to redirect it; our College Savings Calculator shows what a 529 balance may grow to.

Both, for most families: the trust holds the inheritance and the ABLE account handles monthly spending. The trust has no size limit and no payback; the ABLE account is cheap, easy to open and pays rent and groceries without cutting SSI, but has an annual cap, an SSI ceiling and a Medicaid claim at death.

In practice, the family leaves the large money to the trust, the trustee moves up to the annual cap into the ABLE account, and the ABLE account pays rent, food and daily costs with its balance kept under $100,000. The trust pays larger items directly: a van, therapy, a trip with a companion.

Everything a trustee or guardian would need to know if you were not there to ask. A letter of intent is not a legal document, and the trustee is not bound by it, but it is often the most useful thing a family leaves. Include routines and what calms or upsets the person; doctors, medications and what has and has not worked; benefits, case numbers and caseworkers; where you hope they will live; the people who matter to them; interests, work and faith; and how you hope the trust will be spent. Date each version and keep it with the trust.

Walter, 72, and Margaret, 70, have a net worth of about $2.9 million. They want to leave $600,000 to their grandson Sam, 30, who has had an intellectual disability since birth. Sam receives SSI of $994 a month and Medicaid waiver services that pay for staff in his supported apartment. His share would be $300,000 from Walter's IRA and $300,000 from their brokerage account. They are hypothetical; the rules and 2026 figures are real.

The IRA. Suppose the second of them dies in 2026. The trust is written as a type II applicable multi-beneficiary trust, and Sam already has a Social Security disability finding, so he counts as disabled automatically. The trustee sends the IRA custodian the paperwork before October 31, 2027. The first required distribution, in 2027, uses Sam's life expectancy at 31, 54.4 years: $300,000 ÷ 54.4 = $5,515. If the trust keeps all of it, the qualified disability trust deduction of $5,300 leaves $215 taxable and a federal tax of about $21.

Had the trust been drafted without the multi-beneficiary language and fallen under the 10-year rule, the trustee would have to empty the IRA by the end of 2036. Level withdrawals that do that at 5% growth come to about $37,000 a year. Kept in the trust, each year's withdrawal less the $5,300 deduction would owe about $9,700 of federal tax, most of it at 37%, every year for a decade. The drafting is worth far more than the attorney's fee.

Spending. Sam's rent is $1,100 a month. If the trust paid it directly, his SSI would fall by $351.33 to $642.67. Instead, the trustee transfers $20,000 a year into Sam's ABLE account and Sam's mother, who has signature authority, pays rent and groceries from it each month. His SSI stays at $994. The trust pays directly for his therapy, a new laptop, and an annual trip with a paid companion, none of which affects SSI.

While they are alive. Walter and Margaret each give $10,000 a year to Sam's ABLE account, filling the $20,000 cap while staying under their $19,000 exclusions, and his mother keeps the balance under $100,000. They also change the contingent beneficiary on Margaret's IRA, which named “grandchildren, per stirpes,” to route Sam's share to the trust.

• •Naming the person directly on a beneficiary form. An IRA or life insurance payout goes straight to them, becomes a countable resource and can end SSI the following month.
• •Forgetting the contingent beneficiary. “Per stirpes” and “my descendants” can reach a grandchild on benefits if a parent dies first.
• •Disinheriting and trusting a sibling. The money is legally the sibling's, reachable by their creditors and ex-spouse, and passes under their will.
• •Putting the beneficiary's own money into a third-party trust. Mixing their assets in can make the trust countable or subject to payback. Their own money belongs in a first-party trust or an ABLE account.
• •Leaving an IRA to a trust not drafted for it. Without applicable multi-beneficiary trust terms, the trust can lose the lifetime stretch.
• •Missing the October 31 documentation deadline for the IRA custodian in the year after death.
• •Trustee handing over cash or gift cards instead of paying providers directly.
• •Letting ABLE housing money sit into the next month, or letting the balance drift over $100,000 without a plan.
• •Overfilling the ABLE account when several relatives give in the same year without coordinating.
• •Parking an inheritance in an ABLE account and exposing it to a Medicaid claim at death that a third-party trust would have avoided.

1. 1Find out which benefits the person receives now (SSI, SSDI, Childhood Disability Benefits, Medicaid waiver) and whether your state is a 209(b) state. If their parents already have a special needs trust, get a copy.
2. 2List every asset that could reach them, including beneficiary and contingent designations, on the Estate Planning Worksheet.
3. 3Hire a special needs or elder law attorney in your state to draft a third-party special needs trust, or to confirm you can leave to the parents' trust. If an IRA will fund it, ask for type II applicable multi-beneficiary trust terms.
4. 4Choose a trustee, at least two successors, and consider a trust protector.
5. 5Update your will or living trust and every beneficiary form within 30 days of signing the trust. Ask each custodian for written confirmation.
6. 6Decide whether life insurance should fill a funding gap, and make the trust the beneficiary.
7. 7Help open an ABLE account if the disability began before 46, and coordinate annual gifts across the family to stay within $20,000.
8. 8Write the letter of intent and review it every year or two.
9. 9After a death: the trustee obtains a tax ID, gives the IRA custodian the disability documentation and trust certification by October 31 of the following year, and starts annual distributions.