A personal injury settlement can cost the person who receives it their government benefits. SSI and Medicaid are means tested: if your countable resources rise above a small limit, you lose eligibility until they come back down. A special needs trust (SNT) holds the settlement so that it does not count as your resource, and pays for things that supplement, rather than replace, what the benefits cover.
SSI’s resource limit is $2,000 for an individual. A first party SNT under 42 U.S.C. §1396p(d)(4)(A) can hold a disabled person’s settlement without counting against that limit, if the person is under 65, the trust is for their sole benefit, and Medicaid is repaid from what is left at death. Pooled trusts run by non-profits and ABLE accounts are alternatives.
The limit that makes a trust necessary
The Social Security Administration’s operating manual sets out the SSI resource limits: $2,000 for a single individual and $3,000 for an individual with a spouse, figures that “have not changed since 1/1/89.” Settlement money paid straight to you is generally a countable resource once it is in your account. For many people on SSI, Medicaid eligibility is tied to SSI, so losing one can mean losing the other.
The first party (d)(4)(A) trust
Federal law carves out “a trust containing the assets of an individual under age 65 who is disabled… established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual.” That last condition is the Medicaid payback.
SSA applies the exception strictly. Its manual requires that the trust be for the sole benefit of the disabled person: a trust that pays benefits to other people during the person’s lifetime, or that can be ended early outside the permitted terms, loses the exception. SSA’s rules also show a change in who may set the trust up: for trusts established before December 13, 2016, it had to be a parent, grandparent, legal guardian or court; the current statute adds the disabled person themselves.
Types of trust and account
| Type | Whose money | Key condition | Authority |
|---|---|---|---|
| First party (d)(4)(A) | The disabled person’s own settlement | Under 65; sole benefit; Medicaid repaid at death | 42 U.S.C. §1396p(d)(4)(A) |
| Pooled trust (d)(4)(C) | The disabled person’s assets | Established and managed by a non-profit association | 42 U.S.C. §1396p(d)(4)(C) |
| Third party trust | Someone else’s money, such as a parent’s | Outside (d)(4)(A), which covers the person’s own assets | 42 U.S.C. §1396p(d)(4) |
| ABLE account | The beneficiary or family | Disability began before age 46; state repaid from the balance at death | 26 U.S.C. §529A |
Choosing between the options
Age is often the first filter. A first party (d)(4)(A) trust is limited by statute to a disabled person under 65. An ABLE account is open only where the disability began before age 46, the limit Congress raised from 26. A pooled trust, established and managed by a non-profit association, is an alternative to a stand alone trust with its own trustee.
The second filter is what happens at death. A (d)(4)(A) trust and an ABLE account both send the remaining balance to the state, up to what Medicaid paid. Money that a parent or other relative puts into a separate trust of their own is not the disabled person’s asset, so it sits outside the (d)(4)(A) rules. Some families use both: the settlement goes into a first party trust, and relatives leave their own gifts to a separate trust.
A worked illustration
This is an illustration of how the rules interact, not advice on any real case. Suppose a 30 year old who receives SSI and Medicaid settles an injury claim for $150,000.
| Step | Money paid to the person | Money paid into a (d)(4)(A) trust |
|---|---|---|
| Countable resources | Well above the $2,000 limit | The trust is not counted if it meets the conditions |
| SSI and Medicaid | At risk until the money is spent down | Can continue |
| How money is used | Any purpose | For the person’s sole benefit, under the trust terms |
| At death | Passes under the person’s will or state law | State repaid up to the Medicaid it paid; any rest under the trust terms |
Timing matters. Arranging the trust as part of the settlement, often with court approval where the injured person is a minor or lacks capacity, avoids a gap in which the money sits in the person’s own name. Our structured settlement tax guide explains how periodic payments can be combined with a trust.
Frequently asked questions
What is a special needs trust?
Why does a settlement put SSI at risk?
What is the Medicaid payback?
Can I set up the trust myself?
Sources
- 42 U.S.C. §1396p(d)(4), trusts excepted from Medicaid counting (Cornell LII)
- SSA POMS SI 01120.203, exceptions to counting trusts
- SSA POMS SI 01110.003, SSI resource limits
- 26 U.S.C. §529A, ABLE accounts (Cornell LII)