You Can Leave Money to Your Disabled Family Member — Without Costing Them Their Benefits

A special needs trust is the legal structure that stands between your gift and their government benefits. I help Mobile and south Alabama families set these up correctly, so the support you leave behind actually reaches them.

 

Reviewed by Hendrik Snow, Attorney at Law — Snow Law Firm PC

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Why a Regular Inheritance Can Cause Serious Harm

Most government benefit programs for people with disabilities — including SSI and Medicaid — have strict asset limits. Under current SSI rules, a recipient cannot hold more than $2,000 in countable assets. A direct inheritance of even a modest amount can push them over that threshold immediately, triggering a loss of benefits that may take months to restore.

 

A properly drafted special needs trust in Alabama holds those funds separately, outside the recipient's countable assets, so their eligibility remains intact. The trust doesn't replace their benefits — it supplements them, covering expenses that SSI and Medicaid were never designed to pay for.

Not Every Trust Protects Government Benefits

A standard revocable living trust or a straightforward bequest in a will does not accomplish this. If a person receiving SSI or Medicaid inherits money outright — or through a trust that gives them direct access to funds — that money counts against their asset limit. The trust must be specifically structured as a special needs trust, also called a supplemental needs trust, to preserve benefit eligibility. The distinction matters enormously, and it is one I see families get wrong when they try to handle estate planning without guidance specific to disability law.

First-Party Special Needs Trusts

A first-party special needs trust is funded with the disabled person's own money — typically from a personal injury settlement, an inheritance they already received, or accumulated savings. Because the funds originated with the beneficiary, federal law requires that the trust include a Medicaid payback provision: when the beneficiary dies, Medicaid may recover what it paid on their behalf from the remaining trust assets. First-party trusts are most commonly used when someone acquires a disability later in life and needs to restructure existing assets to maintain benefit eligibility.

Third-Party Special Needs Trusts

A third-party special needs trust is funded with someone else's money — typically a parent, grandparent, or sibling who wants to leave support for a disabled family member. Because the funds never belonged to the beneficiary, there is no Medicaid payback requirement. Whatever remains in the trust when the beneficiary dies can pass to other family members or heirs. For most families planning ahead, a third-party trust is the appropriate structure, and it is the one I most commonly draft for clients in the Mobile area.

What a Special Needs Trust Can Pay For

The trust is designed to pay for goods and services that improve quality of life beyond what government programs provide — not to replace those programs. Common permissible expenses include:

 

  • Personal care attendants and supplemental therapies not covered by Medicaid
  • Adaptive equipment, wheelchairs, and assistive technology
  • Education, vocational training, and recreational programs
  • Transportation and vehicle modifications
  • Entertainment, travel, and social activities
  • Clothing, furniture, and household items beyond basic necessities
  • Legal and financial management fees

 

Distributions for food and shelter require careful handling — they can reduce an SSI recipient's monthly benefit under certain rules. I walk every family through these distinctions so the trust is administered correctly from the start.

Pooled Trusts — When a Standalone Trust Isn't the Right Fit

For families whose estate size may not justify the cost of administering a standalone special needs trust, Alabama offers a state-sponsored alternative: the Alabama Family Trust. This is a pooled trust program that combines the funds of multiple beneficiaries under a single nonprofit trustee, reducing administrative overhead while still preserving SSI and Medicaid eligibility. It is a legitimate option I discuss with clients when the circumstances call for it. My goal is to match you to the right structure for your family's situation — not to draft a document for its own sake.

Planning for When You're No Longer Here

One of the hardest conversations I have with clients is about what happens to their disabled adult child after they're gone. A special needs trust addresses the financial side of that question — but it doesn't address who will make decisions for your family member when you no longer can. For families caring for a disabled adult who lacks legal decision-making capacity, guardianship or conservatorship planning belongs alongside the trust itself. I handle both, which means you can address your family member's care authority and their long-term financial protection in the same engagement.

How I Set Up a Special Needs Trust in Alabama

Every trust I draft starts with a conversation — not a form. I need to understand your family member's current benefit programs, the source of the funds you intend to leave, the size of your estate, and your long-term intentions before I recommend a structure. From there, the process is straightforward:

 

  1. We review your family member's current benefit eligibility and identify which trust structure applies.
  2. I draft the trust document to meet Alabama law and federal SSI and Medicaid requirements.
  3. We review the document together until you understand exactly how it works.
  4. The trust is executed and, if needed, coordinated with your broader estate plan — your will, power of attorney, and any other documents that reference your family member.

 

There is no committee, no handoff to a paralegal, and no waiting weeks for a callback. You work directly with me from the first consultation through the signed document.

Why Families in Mobile Choose Snow Law Firm PC

I have been practicing estate planning and probate law in south Alabama for more than 14 years. Special needs planning sits at the intersection of estate law, disability benefit rules, and family dynamics — and it requires an attorney who takes the time to understand all three. Every client I work with gets direct access to me, not a staff member.

 

  • Solo practitioner with 14+ years of focused south Alabama experience
  • Free consultations for all estate planning matters, including special needs trusts
  • Finalist, Best Bankruptcy Attorney — Mobile's local alternative newsweekly awards, 2024
  • Member, Mobile Bar Association and Alabama Bar Association
  • South Alabama Volunteer Lawyers Program member
  • I also handle probate, guardianship, and broader estate planning — so your family's legal needs don't require multiple attorneys
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Common Questions About Special Needs Trusts in Alabama

  • How do I set up a special needs trust for my disabled child in Alabama?

    The process starts with a consultation to identify the right trust structure — first-party or third-party — based on where the funds will come from and your child's current benefit programs. I then draft the trust to meet Alabama law and federal SSI and Medicaid requirements, review it with you in plain language, and coordinate it with your existing estate planning documents. The entire process can typically be completed in a few weeks.

  • What can a special needs trust pay for?

    A special needs trust is designed to supplement — not replace — government benefits. It can pay for therapies, adaptive equipment, education, transportation, recreation, clothing, personal care, and many other quality-of-life expenses. Distributions for food and shelter require careful handling under SSI rules, and I walk every family through those guidelines before the trust is funded.

  • Can I be the trustee of my child's special needs trust?

    Yes, a parent can serve as trustee of a third-party special needs trust for their child. However, careful administration is essential — improper distributions can still affect benefit eligibility. Many families name a successor trustee, such as a sibling or a professional trustee, to take over when the parent is no longer able to serve. I help clients think through trustee selection as part of the drafting process.

  • What happens to the trust when my disabled family member dies?

    For a third-party special needs trust — the most common structure for family planning — the remaining assets pass to whoever you named as remainder beneficiaries, typically other family members. There is no Medicaid payback requirement. For a first-party trust, Medicaid may recover what it paid on the beneficiary's behalf from the remaining balance before anything passes to other heirs.

  • What is the difference between a special needs trust and a supplemental needs trust?

    The terms are used interchangeably. Both refer to a trust specifically designed to hold assets for a person with disabilities without counting those assets toward SSI and Medicaid eligibility limits. The key is that the trust must be drafted correctly — a standard trust or a direct bequest does not accomplish the same result, even if the intent is the same.

Start with a Free Consultation

If you're trying to figure out how to support a disabled family member without putting their benefits at risk, the best first step is a conversation. I offer free consultations for special needs trust matters, and I'll give you a straight answer about what structure makes sense for your family.

 

Snow Law Firm PC is located at 50 Saint Emanuel Street in downtown Mobile. I serve families throughout Mobile County, Baldwin County, and across south Alabama.