Protecting Loved Ones with Special Needs: Understanding Special Needs Trusts in North Carolina
If you want to leave money or assets to a loved one with special needs, how you give can matter as much as what you give.
Without the right planning, a well-meaning gift might cause more harm than good—especially when it comes to eligibility for government assistance like Medicaid or Supplemental Security Income (SSI). That’s why many families turn to Special Needs Trusts.
At Clarity Legal Group®, we help families throughout Durham, Chapel Hill, Raleigh, Cary, and surrounding areas understand their options. Let’s walk through the basics of these important planning tools.
What Is a Special Needs Trust and Why Might You Need One?
A Special Needs Trust is a legal structure that allows you to provide financial support to a person who has special needs—without putting their public benefits at risk.
Programs like Medicaid and SSI have strict asset limits. If a person with a disability receives money directly, whether from an inheritance, a personal injury settlement, or a generous relative, they could lose their eligibility. A properly designed trust helps avoid that.
Instead of giving assets directly, you place them in a trust. A Trustee manages the money and can use it to pay for things not covered by government benefits—like travel, therapy, or specialized equipment. Because the assets are not in the beneficiary’s name, they don’t count against benefit limits.
Two Types of Special Needs Trusts
There are two main kinds of Special Needs Trusts. Choosing the right one depends on where the money is coming from.
1. Third-Party Special Needs Trust (also known as a Supplemental Needs Trust)
This type is funded with money from someone other than the person with special needs, often a parent or grandparent. The trust is often set up as part of an estate plan.
- The Trustee has complete discretion over how and when to use funds.
- Because the money never legally belongs to the beneficiary, it won’t affect eligibility for benefits.
- After the beneficiary passes, the remaining assets can go to other family members or a favorite charity—there’s no requirement to repay Medicaid.
2. First-Party Special Needs Trust
This version is used when the money belongs to the person with special needs. Common sources include legal settlements or direct inheritances.
- It must be established by a parent, grandparent, guardian, or court.
- The person with the disability must be under age 65 at the time the trust is created.
- Upon the beneficiary’s death, any remaining assets must be used to repay Medicaid.
Ongoing Management Matters
Creating a Special Needs Trust is not a one-time task. Ongoing administration and proper record-keeping are essential. Even well-crafted trusts can fail if they’re not managed properly.
That’s why we encourage families to review their plan regularly and to work with experienced professionals.
We’re Here to Help
At Clarity Legal Group®, we understand the emotional and legal complexity involved in special needs planning. Attorneys Mark Costley, Jonathan Williams, and Alan Dickinson bring decades of experience to this sensitive work, helping families find peace of mind across North Carolina’s Triangle region.
If you’re considering a Special Needs Trust in North Carolina or want to ensure your existing plan is working as intended, we invite you to reach out.
Call us at (919) 484-0012
Or contact us online at claritylegalgroup.com
We’re here to guide you every step of the way.
This post was originally publishing in 2019. It was updated and republished August 28, 2025.
