A parent’s instinct is to leave everything they can to a child who needs extra support. But for Michigan families with a loved one who has a disability, that instinct, without proper planning, can be financially devastating.
Here’s the fundamental problem: leaving assets directly to a person who receives Supplemental Security Income (SSI) or Medicaid can disqualify them from the very benefits they depend on to survive. SSI imposes a $2,000 individual resource limit. A single inheritance check, a wrongly structured life insurance payout, or even a well-meaning gift can push a beneficiary over that threshold, triggering benefit suspension or termination, and potentially requiring the individual to spend down every dollar before re-qualifying.
The solution isn’t to leave your disabled loved one nothing. It’s to leave assets in a way that supplements government benefits rather than replacing them. That’s exactly what a supplemental needs trust (SNT) does, and when drafted correctly under Michigan and federal law, it allows families to enhance their loved one’s quality of life without jeopardizing the public benefits that cover essential care.
At Boroja, Bernier & Associates, we help Michigan families build special needs plans that coordinate trusts, ABLE accounts, guardianship, and estate planning into a single, protective framework. Because getting this wrong doesn’t just cost money, it costs your loved one their safety net.
Third-Party Supplemental Needs Trusts: The Foundation of Special Needs Planning
A third-party supplemental needs trust is the most common and most protective tool for families planning on behalf of a loved one with a disability. It is funded with assets belonging to someone other than the disabled beneficiary, typically parents, grandparents, or other relatives, and is designed so that trust assets are not counted as resources for SSI or Medicaid eligibility purposes.
How Third-Party SNTs Work
The trust is created during the grantor’s lifetime or through their estate plan (often as part of a will or revocable living trust). The key structural requirements:
- The beneficiary cannot control the trust assets or direct distributions
- The trustee has sole discretion over when and how funds are distributed
- Distributions must be made for the benefit of the beneficiary, not to the beneficiary directly
- The trust must be drafted as a purely discretionary trust to avoid being counted as an available resource
- The trust must include supplemental intent language – distributions are designed to supplement, not supplant, public benefits
When properly structured, third-party SNTs do not trigger Medicaid payback requirements at the beneficiary’s death. This means remaining trust assets can pass to other family members, siblings, nieces, nephews, rather than being claimed by the state. This is the single biggest advantage of third-party planning over first-party structures.
What Third-Party SNTs Can Pay For
Third-party SNTs offer greater flexibility in permissible distributions than first-party trusts because they are not subject to the same self-settled restrictions. The trust supplements government benefits by covering expenses that SSI and Medicaid don’t:
- Therapies and treatments not covered by insurance or Medicaid
- Technology and adaptive equipment beyond what programs provide
- Housing supplements– rent above what SSI covers, home modifications, furniture
- Transportation– vehicle purchase, maintenance, adaptive modifications
- Education and vocational training
- Recreation, travel, and entertainment that improve quality of life
- Personal care attendants beyond Medicaid-covered hours
“Many Michigan families don’t realize that a supplemental needs trust isn’t about restricting their loved one’s life – it’s about expanding it. The trust pays for everything that government benefits won’t, creating a quality of life that SSI and Medicaid alone can never provide.”
Funding Strategies
Third-party SNTs can be funded through multiple sources:
- Life insurance proceeds (often the most efficient funding vehicle)
- Direct bequests from wills or revocable trusts
- Retirement account beneficiary designations (with careful tax planning)
- Gifts during lifetime from family members
- Inheritances redirected through the estate plan
The critical rule: every family member’s estate plan must be coordinated. If a grandparent leaves $50,000 directly to the disabled beneficiary instead of to the SNT, that inheritance can destroy benefit eligibility. Coordination across the entire family is essential.
A critical planning warning: assets that originate from a third party can inadvertently become “self-settled” if the beneficiary receives them outright first, even briefly. If a relative’s estate plan pays an inheritance directly to the disabled individual rather than to the third-party SNT, those funds are now the beneficiary’s own assets. Sheltering them requires a first-party SNT with Medicaid payback, not the more favorable third-party structure. This is one of the most common, and most costly, planning failures in special needs law. Beneficiary designations, will provisions, and trust distributions must route funds directly to the third-party SNT to avoid this conversion problem.
First-Party (Self-Settled) Supplemental Needs Trusts
Not all special needs trusts are funded by family members. When a person with a disability receives assets in their own name, through a personal injury settlement, inheritance received outright, or divorce proceeding – those assets must be sheltered quickly to preserve benefits. That’s where a first-party (self-settled) SNT comes in.
Key Differences from Third-Party SNTs
First-party SNTs are authorized under federal law (42 U.S.C. § 1396p(d)(4)(A)) and carry requirements that third-party trusts don’t:
- The trust must be established by a parent, grandparent, legal guardian, or court – and, following federal statutory changes, may in some contexts be established by the disabled individual themselves, depending on the benefit program rules involved. The applicable rules should be confirmed for each specific situation.
- The beneficiary must be under age 65 at the time the trust is funded
- The trust must be established for the sole benefit of the disabled individual
- The trust must contain a Medicaid payback provision: at the beneficiary’s death, remaining trust assets must first reimburse the state for Medicaid benefits paid during the beneficiary’s lifetime
That payback requirement is the critical distinction. Unlike third-party SNTs, where remaining assets pass to family, first-party SNTs may have little or nothing left for other beneficiaries after Medicaid reimbursement.
First-party trusts also require more conservative administration than third-party trusts. Trustees must carefully document that every expenditure is for the beneficiary’s sole benefit and must navigate SSI’s in-kind support and maintenance rules with particular care.
When First-Party SNTs Are Necessary
The most common scenarios:
- Personal injury settlements where the disabled individual receives a lump sum
- Inheritances received outright because a family member’s estate plan failed to direct assets into a third-party SNT
- Back payments of Social Security benefits that would exceed the resource limit
- Divorce settlements that award assets to a spouse with a disability
Court approval is typically required to establish a first-party SNT, and the trust language must satisfy both federal requirements and Michigan Medicaid policy. Errors in drafting, particularly around the payback provision or distribution standards, can result in the entire trust being counted as an available resource.
The test for whether a first-party SNT is needed is straightforward: did the beneficiary have the right to outright possession of the funds prior to the transfer to trust? If yes, even if someone else signed the documents on the beneficiary’s behalf, the trust is self-settled and must meet (d)(4)(A) requirements.
Pooled Trusts as an Alternative
For individuals age 65 or older who cannot establish a standard first-party SNT, pooled trusts under 42 U.S.C. § 1396p(d)(4)(C) offer an alternative. These are managed by nonprofit organizations that pool investments while maintaining separate accounts for each beneficiary. Michigan has several pooled trust programs available, though Medicaid treatment of contributions by individuals over 65 requires careful analysis, Michigan’s estate recovery framework under MCL 400.112k and related authority should be considered as part of any pooled trust strategy.
ABLE Accounts: A Companion Tool, Not a Replacement
Michigan’s ABLE (Achieving a Better Life Experience) accounts – administered through the MiABLE program under 26 U.S.C. § 529A – provide a tax-advantaged savings option for individuals with qualifying disabilities.
How ABLE Accounts Work
As of January 1, 2026, ABLE eligibility expanded significantly under the ABLE Age Adjustment Act (part of SECURE 2.0). The qualifying disability onset age increased from before age 26 to before age 46 – nearly doubling the number of individuals who can benefit from these accounts.
ABLE accounts allow qualified individuals to save up to $20,000 per year (the 2026 annual contribution limit) without affecting SSI or Medicaid eligibility, provided the account balance stays at or below $100,000 for SSI purposes. Medicaid eligibility is not affected regardless of account balance. For working beneficiaries, the “ABLE to Work” provisions may allow contributions above the basic annual limit, subject to statutory and regulatory constraints, confirm current rules annually.
Eligible individuals must have a qualifying disability with onset before age 46 and meet one of the listed entitlement or diagnosis pathways. If the account owner lacks legal capacity, an authorized individual (power of attorney agent, guardian, conservator, spouse, parent, sibling, grandparent, or representative payee) can manage the account under a priority framework established by the program.
Contributions may come from many sources, family members, friends, and even transfers from supplemental needs trusts – using multiple funding methods. Rollovers from Section 529 education savings accounts are also permitted, subject to family-member limitations and annual-limit interactions.
Permitted uses, called qualified disability expenses (QDEs) – include:
- Education and employment training
- Housing and transportation
- Health and wellness expenses
- Assistive technology
- Financial management and legal fees
Withdrawals used for non-qualified expenses are subject to income tax and a penalty on the earnings portion, so maintaining clear records of how funds are spent matters.
ABLE Accounts vs. Supplemental Needs Trusts
ABLE accounts are useful but limited. They work best as a companion tool alongside a supplemental needs trust, not as a substitute:
| Feature | ABLE Account | Supplemental Needs Trust |
| Annual contribution limit | $20,000 (2026) | No limit |
| Total balance (SSI impact) | $100,000 cap for SSI | No cap if properly drafted |
| Medicaid payback | Yes, at death | Third-party: No; First-party: Yes |
| Who can fund | Anyone (including SNT-to-ABLE transfers) | Depends on trust type |
| Beneficiary control | Beneficiary or authorized individual manages | Trustee controls |
| Investment control | Limited plan options | Trustee discretion |
| Disability onset age | Before age 46 (as of 2026) | No age restriction (third-party) |
For families with significant assets to protect, the SNT handles the heavy lifting while the ABLE account provides flexible, day-to-day spending power that the beneficiary can manage more independently.
SNT-to-ABLE Funding: A Powerful Coordination Strategy
One of the most effective planning strategies involves periodic contributions from the SNT to the beneficiary’s ABLE account, subject to annual contribution limits and program rules. This approach:
- Gives the beneficiary autonomy over day-to-day qualified disability expenses without requiring trustee processing for every purchase
- Reduces administrative friction for routine expenditures (transportation, technology, personal care items)
- Allows the trustee to retain control over the primary trust fund while providing predictable, structured spending authority
Both third-party and first-party SNTs can fund ABLE accounts, making this a versatile strategy regardless of how the trust was established.
Choosing Trustees and Successor Trustees
The trustee you select for a supplemental needs trust can make or break the plan. A poorly chosen trustee, even a well-meaning one, can inadvertently disqualify the beneficiary from benefits through a single improper distribution.
Family Trustees vs. Professional Trustees
Family trustees (typically siblings or other relatives) offer personal knowledge of the beneficiary’s needs and preferences. But they face risks:
- Lack of expertise in SSI and Medicaid rules governing permissible distributions
- Emotional pressure from the beneficiary or other family members to make improper payments
- Burnout from the long-term administrative burden of trust management
- Conflicts of interest when the trustee is also a remainder beneficiary – a concern that is particularly acute in first-party SNTs where the remainder interest is effectively a Medicaid payback obligation
Professional trustees (trust companies, banks, or professional fiduciaries) bring expertise and objectivity but may lack the personal relationship needed to make sensitive quality-of-life decisions. They also typically charge annual fees based on a percentage of trust assets.
The Best of Both Worlds: Co-Trustee and Trust Protector Structures
Many Michigan families use a co-trustee arrangement: a family member who understands the beneficiary’s daily needs paired with a professional trustee who manages investments and ensures compliance with benefit rules.
A trust protector – an independent third party with limited powers, adds another layer of flexibility. The trust protector can:
- Remove and replace trustees if they’re not performing
- Modify administrative provisions to adapt to changes in law or the beneficiary’s circumstances
- Resolve disputes between co-trustees without court intervention
Planning for successor trustees is equally important. The trust may need to function for decades. Who takes over when the original trustee can no longer serve? Building a clear succession plan into the trust document prevents gaps in management that could harm the beneficiary.
Common Drafting and Administration Mistakes
In our experience serving Michigan families, these mistakes cause the most damage in special needs planning, and most are entirely preventable.
Paying Cash Directly to the Beneficiary
This is the single most common, and most dangerous, mistake. Any cash paid directly to an SSI recipient counts as unearned income and can reduce or eliminate benefits. Trust distributions must be made to third-party vendors for goods and services, not to the beneficiary’s bank account.
Even small, well-intentioned cash gifts, birthday money, spending cash, can trigger SSI reporting requirements and benefit reductions. Using the beneficiary’s ABLE account for routine spending needs is a far safer alternative to direct cash distributions.
Using the Wrong Distribution Standards
Trust language matters enormously. If the trust gives the beneficiary an enforceable right to distributions, rather than leaving distributions to the trustee’s sole and absolute discretion – the entire trust corpus may be counted as an available resource for SSI purposes.
The standard language should grant the trustee discretion to make distributions that supplement, but do not supplant, government benefits. Mandatory distribution language, ascertainable standards like “health, education, maintenance, and support” (HEMS), or provisions that require distributions for basic needs can all compromise the trust’s protective structure. The HEMS standard that works well in other trust contexts is actively dangerous in special needs planning.
Failing to Coordinate Across Family Estate Plans
A perfectly drafted SNT is useless if grandma’s will leaves $25,000 directly to the beneficiary instead of to the trust. Every family member who might leave assets to the disabled individual, parents, grandparents, aunts, uncles, must direct those bequests to the SNT. One uncoordinated estate plan can undo years of careful work.
This coordination failure is also the most common reason third-party planning inadvertently becomes a first-party problem. Assets that pass through the beneficiary’s hands, even briefly, become the beneficiary’s own assets, requiring a first-party trust with Medicaid payback rather than the more favorable third-party structure.
Ignoring Housing Rules
Housing is the most complex area of SNT administration. If the trust pays for shelter-related expenses (rent, mortgage, property taxes, utilities), those payments may be treated as in-kind support and maintenance (ISM) under SSI rules, potentially reducing the beneficiary’s monthly benefit. The reduction is capped at the presumed maximum value (PMV) – currently one-third of the federal benefit rate plus $20, but trustees must understand these rules before making housing-related distributions.
The calculation is fact-specific and depends on the beneficiary’s living arrangement, who else contributes to housing costs, and how the payment is structured. Trustees who make housing payments without understanding ISM rules risk unexpected benefit reductions.
Not Planning for the Beneficiary’s Entire Lifetime
Special needs trusts must be designed to last. A trust that runs out of money when the beneficiary is 50 fails just as completely as one that was never created. Investment strategy, distribution pacing, and realistic projections of the beneficiary’s lifetime needs should all be addressed during the planning phase, not left to chance.
Tax planning also matters for the long term. Most SNTs are taxed as non-grantor trusts, requiring their own EIN and annual Form 1041 filings. Some trusts may qualify for Qualified Disability Trust treatment under IRC § 642(b)(2)(C), which provides a larger personal exemption. Ongoing tax compliance is part of responsible trust administration.
Frequently Asked Questions About Special Needs Planning in Michigan
Yes, if the inheritance is received outright. SSI imposes a $2,000 individual resource limit, and any inheritance that pushes the beneficiary over that threshold can trigger benefit suspension or termination. However, if the inheritance is directed into a properly drafted supplemental needs trust, it will not count as an available resource, preserving both benefits and the inheritance. The key is directing the inheritance to the trust before it reaches the beneficiary’s hands.
The difference is whose money funds the trust. A third-party SNT is funded with other people’s money (parents, grandparents, relatives) and does not require Medicaid payback at the beneficiary’s death, remaining assets pass to other family members. A first-party SNT is funded with the disabled individual’s own assets (injury settlement, inheritance received outright, back benefits) and must include a Medicaid payback provision, the state is reimbursed for benefits paid before any remaining assets go to heirs. Third-party trusts also offer greater flexibility in administration and permissible distributions.
Yes, but housing distributions are complex under SSI rules. Trust payments for rent, mortgage, property taxes, or utilities may be treated as in-kind support and maintenance, which can reduce the beneficiary’s monthly SSI payment by up to the presumed maximum value. An experienced trustee must weigh the value of the housing benefit against the SSI reduction to determine whether the distribution makes sense for the beneficiary’s overall situation.
It depends on the type of trust. For a third-party SNT, remaining assets pass to the remainder beneficiaries named in the trust, typically siblings or other family members. For a first-party SNT, the trust must first reimburse the state for all Medicaid benefits paid during the beneficiary’s lifetime. Only after that payback is satisfied do any remaining assets pass to heirs. ABLE accounts also carry a Medicaid payback requirement at death.
A supplemental needs trust as a standalone document typically costs $3,500-$4,500, depending on complexity and whether the plan involves a third-party or first-party structure. Most families also need a comprehensive trust-based estate plan ($2,500-$5,500) to coordinate the SNT with their overall planning, including wills, powers of attorney, and beneficiary designations that properly route assets to the trust. If guardianship or conservatorship proceedings are also needed, those typically run $5,000-$10,000+. The total investment in coordinated special needs planning is modest compared to the risk of a beneficiary losing tens of thousands of dollars in annual benefits due to a preventable planning failure.
In most cases, yes. ABLE accounts are a valuable companion tool, but they have annual contribution limits ($20,000 in 2026) and the account balance affects SSI eligibility once it exceeds $100,000. A supplemental needs trust has no contribution limits and, when properly drafted, no cap on assets. For families with significant assets to protect, the SNT provides comprehensive, long-term protection that an ABLE account alone cannot match. The most effective approach combines both: the SNT holds and protects the large capital base, while the ABLE account provides beneficiary-controlled spending for day-to-day qualified disability expenses.
Absolutely. Many individuals with disabilities who need a supplemental needs trust also need a guardian or conservator to make personal or financial decisions on their behalf. Under Michigan’s guardianship statutes, the court must find that the individual lacks capacity to make certain decisions before appointing a guardian. Coordinating the trust, guardianship, and the overall estate plan ensures that decision-making authority, financial management, and benefit preservation all work together. Guardianship proceedings in Michigan typically cost $5,000-$10,000+.
Take the Next Step: Build a Plan That Protects for a Lifetime
Special needs planning isn’t a single document, it’s a coordinated framework that must account for government benefit rules, family estate plans, trustee management, and the beneficiary’s lifetime needs. The cost of getting it wrong is measured not in dollars alone, but in lost benefits, reduced quality of life, and family conflict that proper planning prevents.
At Boroja, Bernier & Associates, we help Michigan families throughout the state create special needs plans that protect benefits, enhance quality of life, and provide peace of mind for parents who need to know their child will be cared for, long after they’re gone. Our attorneys coordinate supplemental needs trusts with ABLE accounts, guardianship planning, and comprehensive estate plans to ensure every piece works together.
With our main office in Shelby Township and satellite offices in Troy, Ann Arbor, and Lansing, we serve families across Michigan who are planning for a loved one’s lifetime of care.
To schedule a consultation with the Michigan estate planning attorneys at Boroja, Bernier & Associates, call our law offices at (586) 991-7611. Let us help you build a plan that gives your family member the best possible life, without sacrificing the benefits they depend on.
