Glossary

Special needs trust

A trust that holds money for a person with a disability without disqualifying them from means-tested benefits such as SSI and Medicaid.

Also called: supplemental needs trust, SNT

A special needs trust holds assets for a person with a disability so the money can pay for things that improve quality of life, such as therapies, equipment, travel or education, without counting as the beneficiary's own resources. That matters because Supplemental Security Income and Medicaid have strict asset and income limits; a direct inheritance or life insurance payout can knock a beneficiary off benefits until it's spent down.

There are two main kinds. A third-party trust is funded with someone else's money, typically the parents', and is the usual home for life insurance proceeds; it generally doesn't have to repay Medicaid when the beneficiary dies. A first-party trust holds the disabled person's own assets, such as a legal settlement, and must repay Medicaid from what's left. Hypothetically, parents could buy a survivorship policy and name a third-party trust as beneficiary, so a trustee manages the proceeds for their adult child for life.

The trust must be drafted carefully, and the beneficiary designation must name the trust, not the child. Distributions for food or shelter can reduce SSI. An estate attorney who handles special needs planning is the place for specifics. See life insurance for parents of a child with special needs.

Last reviewed October 4, 2026

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Related terms

Trustee The person or institution that holds legal title to trust assets and manages them for the beneficiaries under the trust's terms and fiduciary duties. Beneficiary designation The signed instruction on file with an insurer naming who receives a policy's proceeds, in what shares and in what order. Testamentary trust A trust written into a will that comes into existence only after death and probate, often to manage money for minor children. Revocable living trust A trust you create and control during your life that can hold assets or receive life insurance, then distribute them after death without probate. Irrevocable life insurance trust (ILIT) A trust that owns life insurance and can't be changed or revoked by its creator, keeping the death benefit out of the insured's taxable estate.

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Life insurance for caregivers Family caregivers carry unpaid work and dependents. How to size coverage by the cost of replacing your care, pick a policy and protect the person you care for. Life insurance for parents of a child with special needs Why a special needs trust, not your child, should be the beneficiary: SSI and Medicaid rules, which policies fit, how much to buy, and where ABLE accounts fit. Using life insurance in an estate plan The jobs life insurance does in an estate plan, from income replacement to paying estate taxes, and the ownership choices that decide whether it helps. How life insurance is paid to a minor Insurers will not pay a child directly. Compare a court-appointed guardian, a UTMA custodian and a trust, and what each means for control, cost and age. Naming a minor child as life insurance beneficiary Insurers won't pay a minor directly. Compare a court guardianship, a UTMA custodian and a trust for children's life insurance money, and how to set each up. Naming a trust as your life insurance beneficiary When a trust makes sense as a life insurance beneficiary, which kinds of trust work, how to name it on the form, and the mistakes that send the money astray.