Published on October 24, 2024. Last Updated on August 14, 2025.
As an elder law attorney, I have the privilege of helping families protect their loved ones with disabilities through special needs trust planning. The goal always remains the same: to ensure financial stability while safeguarding eligibility for vital public benefits like Supplemental Security Income (SSI) and Medicaid.
When done correctly, special needs planning can transform lives. When done incorrectly—or not at all—it can cause years of hardship, denied benefits, and unnecessary financial loss. The following real-life example shows the difference proper planning can make.
When Repeated Benefit Denials Became a Turning Point
A family came to my office after being referred by a neighbor. Their adult son, who has significant disabilities, had applied for SSI and Medicaid multiple times and had been denied each time.
They were frustrated, confused, and fearful about their son’s future. They knew he needed long-term financial and medical support, but they also knew that if he had “too much” money or assets in his name, the government would continue to deny him benefits. Unfortunately, they had no idea how to resolve this conflict.
The family attended one of our special needs trust workshops, where we explained how the right type of trust could preserve assets while keeping benefits intact. They immediately scheduled a consultation, determined to find a solution.
The Solution: A First-Party Special Needs Trust
After reviewing their son’s financial situation in detail, I recommended establishing a First-Party Special Needs Trust (also called a “self-settled” trust).
Here’s why this was the right choice:
- It’s funded with the individual’s own assets. This was important because the son already had resources in his name—enough to disqualify him from SSI and Medicaid.
- It protects eligibility for public benefits. By moving those assets into the trust, he no longer “owned” them for eligibility purposes.
- It has a Medicaid payback provision. Any funds remaining in the trust upon his death would first be used to reimburse the state for Medicaid expenses.
Once the trust was properly drafted and funded, the son reapplied for benefits. This time, his application was approved. He became eligible for both SSI and Medicaid, receiving critical income and healthcare coverage. For him, the approval was life-changing. For his parents, it brought peace of mind after years of uncertainty.
Understanding the Two Main Types of Special Needs Trusts
There are two main types of special needs trusts. Understanding how they work and how they differ from one another reveals why a First-Party Special Needs trust was the best option for this young man.
1. First-Party Special Needs Trust
- Funded with the individual’s own assets. It enables a person with disabilities to maintain eligibility for public benefits even if they have excess funds. However, it includes a Medicaid payback provision—any funds remaining upon the beneficiary’s death may be used to reimburse the state for Medicaid expenses.
2. Third-Party Special Needs Trust
- Funded with assets from someone other than the beneficiary (such as parents or grandparents). This trust does not require a Medicaid payback. The reason is simple: the funds were never owned by the individual receiving benefits.
In this case, the First-Party Trust solved the immediate eligibility problem. But as it turned out, it wasn’t the only trust this young man would need.
A Sudden Loss, but a Fortunate Plan
Not long after we set up the First-Party Trust, tragedy struck. The son’s grandparents were killed in a car accident. They had been an integral part of his life and wanted to ensure he was cared for long after they were gone.
Fortunately, they had planned ahead. In prior conversations with me, they shared their wish to leave a portion of their estate to their grandson, knowing his financial needs might exceed those of his siblings.
I advised them to avoid leaving the inheritance to him outright, which would jeopardize his SSI and Medicaid. Instead, we established a Third-Party Special Needs Trust for him and incorporated it into their estate plan. This trust would be funded entirely with their assets and would not require a Medicaid payback.
When the grandparents passed away, their estate plan worked exactly as intended. The grandson received the support from the Third-Party Specials Needs Trust they had set up without losing his public benefits.
Why This Planning Was Life-Changing
By working with an attorney experienced in special needs planning, this family achieved several critical outcomes:
- Restored Eligibility for Benefits
The First-Party Trust allowed the son to keep his own assets while qualifying for SSI and Medicaid. - Protected an Inheritance
The Third-Party Trust ensured that his grandparents’ gift did not jeopardize his benefits. - Secured Long-Term Support
With both trusts in place, he now has structured financial resources for his lifetime.
Lessons for Families with Loved Ones Who Have Disabilities
Special needs planning is an essential step in protecting your loved one. There are a few key principles you should follow:
- Never leave assets directly to the person with disabilities. This includes inheritances, life insurance proceeds, and gifts. Doing so will almost always cause a loss of benefits.
- Involve all family members in planning. Parents, grandparents, siblings, and other relatives should understand the importance of coordinating their estate plans to avoid any disruptions to benefits.
- Choose the right trust for the situation. First-Party Trusts solve the “too many assets” problem for someone already in possession of funds. Third-Party Trusts are best for gifts or inheritances from others.
- Get professional guidance. The rules governing benefits and trusts are complex and constantly evolving. A mistake can cost your loved one thousands of dollars and years of lost support.
What Could Have Happened Without Planning
If this family had not created these trusts, here’s what likely would have occurred:
- Continued Denial of Benefits
Without the First-Party Trust, the son’s own assets would have kept him ineligible for SSI and Medicaid indefinitely. - Loss of Inheritance
If his grandparents had left assets to him directly, he would have been disqualified from benefits until those assets were spent down—which often happens quickly. - Increased Financial Risk
Without structured trust management, the funds could have been mismanaged or lost, leaving him without long-term security.
In short, without proactive planning, this family could have faced years of unnecessary financial instability and stress.
The Takeaway for Pennsylvania Families
If your family includes a loved one with disabilities, the time to act is now—before a crisis occurs. Proper special needs trust planning can:
- Preserve eligibility for public benefits
- Provide supplemental support for quality of life
- Protect inheritances and gifts from benefit disruption
- Give peace of mind to parents, grandparents, and siblings
Get Expert Guidance on Special Needs Planning in Pennsylvania
If your family includes a loved one with special needs, seeking guidance from a qualified Pennsylvania special needs planning attorney can make a life-changing difference. Proper trust planning ensures your loved one remains eligible for essential benefits while still receiving the support they need. Our team at Bellomo & Associates LLC would be honored to assist you with protecting your loved one’s future.
Contact our office today to learn more or visit our website to register for an upcoming event or free weekly workshop.
