Estate Planning · Special Needs Trusts
Special Needs Trust Lawyer Pittsburgh
A special needs trust is a legal structure designed to hold assets for a person with a disability without disqualifying them from Medicaid, SSI, or other needs-based government benefits. When a person with a disability receives a catastrophic injury settlement, an inheritance, or any other substantial sum, the money must be structured correctly or it will eliminate the benefits that pay for daily care, medical treatment, and support services. Lebovitz & Lebovitz, P.A. drafts and administers special needs trusts throughout Pittsburgh, Allegheny County, and southwestern Pennsylvania as part of our estate planning practice.
The consequences of getting this wrong are immediate and severe. A disabled person who receives a settlement or inheritance directly, without a properly drafted trust in place, can lose Medicaid coverage, SSI income, and access to programs that cannot be replaced with private funds at any reasonable cost. In these situations, the trust is often the only mechanism that preserves both the funds and the benefits. It is the mechanism that allows the person to benefit from the money without losing the government support they depend on.
Lebovitz & Lebovitz, P.A. · A Pittsburgh Law Firm With Roots to 1933. Serving Allegheny County and southwestern Pennsylvania.
If a person with a disability is about to receive a settlement, inheritance, or other significant payment, the trust must be in place before the funds are received.
Call 412-351-4422 or contact our office to discuss timing, structure, and benefit preservation before funds are disbursed.
When a Special Needs Trust Is Needed
The most common trigger is a personal injury settlement for a person who receives or will need Medicaid or SSI. A catastrophic injury that results in permanent disability often produces a substantial settlement, and that settlement must be held in a trust rather than paid directly to the injured person. Without the trust, the settlement funds count as assets that disqualify the person from benefits, even though the settlement was intended to pay for their care.
Special needs trusts are also used when a disabled person is named as a beneficiary of a will, trust, or life insurance policy. Parents of children with disabilities frequently establish trusts as part of their estate plan to ensure that an inheritance does not disrupt benefits the child depends on. Families receiving structured settlement payments on behalf of a minor with a disability must coordinate the payment structure with a trust to preserve eligibility.
The need arises whenever a person with a disability is about to receive money that would push their countable assets above the eligibility threshold for Medicaid or SSI. The threshold is low: $2,000 in countable resources for SSI. Even a modest inheritance or settlement, received without a trust in place, can result in immediate loss of benefits.
First-Party vs. Third-Party Special Needs Trusts
If you are a parent planning for a child with a disability, or a family managing the aftermath of a serious injury, the structure of the trust depends on where the money is coming from and who it belongs to.
A first-party special needs trust is funded with the disabled person’s own money: a personal injury settlement, an inheritance received directly, or accumulated savings. Because the money belongs to the beneficiary, federal law requires that when the beneficiary dies, any remaining funds in the trust must first be used to reimburse Medicaid for benefits paid during the beneficiary’s lifetime. This payback requirement is the defining feature of first-party trusts and exists because the trust is, in effect, deferring the government’s right to recover costs it paid on the beneficiary’s behalf.
A third-party special needs trust is funded with money that belongs to someone other than the disabled person: a parent’s estate, a family member’s gift, or a life insurance policy naming the trust as beneficiary. Because the money never belonged to the disabled person, there is no Medicaid payback requirement. When the beneficiary dies, remaining funds pass to the remainder beneficiaries named in the trust, typically other family members.
The distinction matters for planning. A family creating an estate plan for a child with a disability should use a third-party trust to avoid the payback requirement. An injury settlement for a disabled person requires a first-party trust because the funds belong to the beneficiary. Using the wrong type can result in loss of benefits, unnecessary payback obligations, or both.
How Special Needs Trusts Protect Benefits
Medicaid and SSI impose strict asset limits on eligibility. SSI limits countable resources to $2,000 for an individual. Medicaid eligibility in Pennsylvania is tied to SSI in most cases. When a person with a disability receives money directly, it becomes a countable resource that can push them over the limit and terminate benefits immediately.
A properly drafted special needs trust holds the assets outside of the beneficiary’s countable resources. The beneficiary does not own the trust assets. The trustee controls distributions, and distributions are made for the beneficiary’s supplemental needs: things that Medicaid and SSI do not cover, such as personal items, transportation, recreation, education, and specialized equipment. The trust supplements government benefits rather than replacing them.
The trust must be drafted to comply with federal and state requirements. Distributions that substitute for benefits Medicaid would otherwise provide, such as paying rent or food costs directly, can reduce SSI payments or jeopardize eligibility. The trustee must understand these rules, and the trust document must give the trustee clear guidance on what types of distributions are permitted. For more on Medicaid planning in Pennsylvania, see our Medicaid planning page.
Trustee Role and Structure
The trustee controls the trust assets and makes all distribution decisions. In a special needs trust, the trustee’s role is more complex than in a standard trust because every distribution must be evaluated against Medicaid and SSI rules. A distribution that seems helpful, such as paying the beneficiary’s rent, can actually reduce their SSI payment dollar for dollar. The trustee must understand which distributions are safe and which create benefit problems.
A family member can serve as trustee, but the role carries significant fiduciary responsibility and requires ongoing familiarity with benefit rules that change over time. A corporate trustee, such as a bank trust department, provides professional management but charges fees that reduce the trust principal. Some families use a combination: a family member as co-trustee for personal knowledge of the beneficiary’s needs, and a corporate or professional co-trustee for financial management and compliance. If you are choosing a trustee, the decision should account for both the trustee’s relationship with the beneficiary and their ability to manage the compliance requirements over time.
The trust document should address trustee succession, investment authority, distribution standards, and reporting requirements. These provisions protect the beneficiary if the original trustee becomes unable to serve or if disputes arise about how the trust is being managed.
Court Involvement and Guardianship
When the beneficiary is a minor, court approval is typically required before a personal injury settlement can be placed into a special needs trust. The court reviews the trust terms, the settlement amount, and the proposed trustee to ensure the arrangement serves the minor’s interests. In Allegheny County, these matters are handled through the Orphans’ Court Division.
When the beneficiary is an incapacitated adult, guardianship may be necessary before a trust can be established or funded. A guardian of the estate has the legal authority to create a first-party special needs trust on behalf of the incapacitated person, subject to court approval. The guardianship and trust proceedings often run in parallel, and both require careful coordination to ensure that benefits are not interrupted during the transition. For more information on how legal decision-making authority is established for minors and incapacitated adults, see our guardianship page.
How Special Needs Trusts Fit Into Injury Settlements
In many cases, particularly after a catastrophic injury, the settlement is often the largest single financial event in the injured person’s life. If the injured person qualifies for Medicaid or SSI, or will need to qualify in the future, the settlement must be structured to preserve those benefits. The trust must be drafted and approved before the settlement funds are disbursed. If the money reaches the beneficiary’s hands before the trust is in place, benefits can be terminated immediately.
The timing of trust creation matters. In litigation, the trust should be drafted during settlement negotiations so that the settlement agreement can direct payment into the trust rather than to the injured person individually. In cases involving structured settlements, the periodic payment schedule must be coordinated with the trust terms so that payments flow into the trust without triggering benefit problems.
The decision between a lump-sum settlement and a structured settlement has direct implications for the trust. A lump sum placed into a first-party trust is managed and invested by the trustee. A structured settlement provides guaranteed periodic payments but is less flexible. In many catastrophic injury cases, the optimal approach combines both: a portion placed into the trust as a lump sum for immediate and flexible needs, and a structured settlement component providing long-term guaranteed income. The trust, the settlement structure, and the benefit preservation strategy must all be designed together, because a mistake in any one eliminates the protection the others were meant to provide.
Frequently Asked Questions About Special Needs Trusts in Pennsylvania
What is a special needs trust?
A special needs trust is a legal arrangement that holds assets for a person with a disability without disqualifying them from Medicaid, SSI, or other needs-based government benefits. The trustee controls the funds and makes distributions for supplemental needs that government programs do not cover. The trust allows the beneficiary to benefit from the assets while maintaining eligibility for the programs that pay for their basic care.
Can I keep Medicaid if I receive a personal injury settlement?
Yes, if the settlement is placed into a properly drafted first-party special needs trust before the funds are received. If the settlement money is paid directly to you without a trust in place, it becomes a countable asset that can disqualify you from Medicaid and SSI. The trust must be established and approved before the settlement is disbursed.
Who controls the money in a special needs trust?
The trustee controls the trust assets and makes all distribution decisions. The beneficiary does not have direct access to the funds. The trustee must follow the terms of the trust document and comply with Medicaid and SSI rules when making distributions. A family member, a professional trustee, or a combination of both can serve as trustee.
What happens to the trust when the beneficiary dies?
In a first-party trust (funded with the beneficiary’s own money), remaining funds must first reimburse Medicaid for benefits paid during the beneficiary’s lifetime. Any balance after reimbursement passes to the remainder beneficiaries named in the trust. In a third-party trust (funded by family or others), there is no Medicaid payback requirement, and remaining funds pass directly to the named remainder beneficiaries.
Does every injury settlement require a special needs trust?
No. A special needs trust is necessary only when the injured person receives or is likely to need Medicaid, SSI, or other needs-based government benefits. If the injured person does not rely on these programs and is not expected to in the future, a standard trust or direct payment may be appropriate. The determination depends on the person’s current benefit status, future care needs, and the size of the settlement.
Can a family member set up a special needs trust?
A third-party special needs trust can be established by a parent, grandparent, or other family member using their own assets. A first-party trust, funded with the disabled person’s own money, must be established by a parent, grandparent, guardian, or the court. Under federal law governing traditional special needs trusts, the disabled person cannot establish a first-party trust themselves unless they do so through a pooled trust administered by a nonprofit organization.
This page covers special needs trusts in Pennsylvania. For broader estate planning, see estate planning and probate. For Medicaid eligibility planning, see Medicaid planning in Pennsylvania. For injury cases involving permanent disability, see catastrophic injury representation.