Special Needs Trusts: How to Protect a Loved One's Future Without Losing Essential Benefits

If you're raising a child with a disability, or caring for an adult family member who relies on programs like SSI or MassHealth, you've probably had a quiet worry in the back of your mind: what happens to them when you're no longer the one holding everything together?

It's a natural instinct to want to leave that person money, a share of the house, or an inheritance to make sure they're taken care of. But here's the part almost no one warns families about until it's too late: an inheritance, a life insurance payout, or even a well-meaning gift from a grandparent can accidentally disqualify a loved one from the very benefits they depend on.

That's where a special needs trust comes in. It's one of the most important — and most misunderstood — tools in a family's planning toolkit.

Why a Direct Inheritance Can Backfire

Many need-based government programs, including Supplemental Security Income (SSI) and MassHealth, set a hard limit on how much a person can own and still qualify.

If a loved one with a disability inherits money outright, or is named directly as a beneficiary on a life insurance policy or retirement account, that inheritance can push them over the limit overnight. Benefits can be suspended, and in some cases a family has to spend the inheritance down to nothing before coverage is restored.

A special needs trust solves this by holding assets on a person's behalf, rather than in their own name, so the funds don't count against those strict limits.

Two Very Different Types of Special Needs Trusts

Not all special needs trusts work the same way, and the type you need depends on whose money is funding it.

A third-party special needs trust is funded with assets that never belonged to the person with the disability — typically money from a parent, grandparent, or other family member, often set up through a will or living trust. This is the version most families create as part of their own estate plan, and it comes with a real advantage: whatever remains in the trust when the beneficiary passes away can go to other family members, with no obligation to reimburse the state.

A first-party (or "self-settled") special needs trust is funded with the beneficiary's own assets — say, money from a personal injury settlement, or an inheritance received before proper planning was in place. These trusts can still preserve benefit eligibility, but Massachusetts law requires a payback provision: when the beneficiary passes away, remaining funds first reimburse MassHealth for services provided during their lifetime.

Getting the type wrong, or the trust language even slightly off, can jeopardize the benefits it was meant to protect — this is not a document to draft from a template.

What the Trust Can Actually Pay For

A common misconception is that these trusts are only for large inheritances. In practice, they're a flexible tool for covering the things that public benefits don't, often called "supplemental" needs: therapies and equipment not covered by insurance, education and job training, technology, travel and recreation, and everyday quality-of-life expenses that make a real difference but fall outside what Medicare or SSI provide.

A 2026 Update Worth Knowing About: ABLE Accounts

Special needs trusts often work alongside ABLE accounts, a tax-advantaged savings option created specifically for individuals with disabilities. Two changes make these more useful than ever this year:

The eligibility window has expanded significantly. Previously, only individuals whose disability began before age 26 could open an ABLE account. As of 2026, that cutoff has been raised to age 46, opening the door to millions of additional families.

The numbers have also grown: account holders can now contribute up to the federal annual gift tax exclusion amount ($19,000 for 2026), and up to $100,000 held in an ABLE account is excluded from SSI's resource limit entirely. For many families, pairing an ABLE account with a special needs trust offers the most flexibility — quick access to funds for everyday expenses through the ABLE account, with the trust handling larger, long-term protection.

Don't Wait for a Crisis to Plan

We often meet families after something has already forced the issue — a grandparent's estate is about to distribute, a settlement is pending, or a parent's health has taken a turn. The best time to set up a special needs trust is before any of that happens, as part of a broader estate plan that accounts for every member of your family, including the ones who need a little extra protection.

If you're caring for a loved one with a disability in Massachusetts or New Hampshire and want to make sure your estate plan actually protects them — rather than accidentally disqualifying them from the support they rely on — we'd welcome the conversation. Reach out to schedule a consultation, and let's build that safety net together.