When you have a family member with a disability, one of the most important things you can do is plan for their long-term financial future. The right plan can mean the difference between your loved one having access to the resources they need for a full, supported life — or losing the very government benefits they depend on because of an inheritance or financial windfall they never asked for.
Special needs trusts are the primary tool families use to solve this problem. A properly structured special needs trust allows you to set aside money and assets for a person with a disability without disqualifying them from essential programs like Supplemental Security Income (SSI) and Medicaid. The trust supplements government benefits rather than replacing them, covering expenses that public programs don’t — things like additional medical care, therapy, assistive technology, recreation, education, and personal enrichment.
But not all special needs trusts are the same. The two primary types — first-party and third-party — serve different purposes, are funded differently, have different legal requirements, and produce very different outcomes when the beneficiary passes away. If you’re planning for a loved one with special needs in Georgia, understanding the distinction between these two trusts is essential to making the right choice for your family.
Why Special Needs Trusts Matter in Georgia
Georgia is one of 39 states (plus the District of Columbia) where receiving even one dollar of SSI benefits automatically qualifies an individual for Medicaid. This is significant because Medicaid covers healthcare and long-term care services that can be extraordinarily expensive — services that many families cannot afford to pay for on their own.
To qualify for SSI, an individual generally cannot have more than $2,000 in countable assets. That means a direct inheritance of $50,000, a personal injury settlement, or even a well-intentioned gift from a grandparent could push a person with a disability over the asset limit and cause them to lose both SSI and Medicaid. The consequences can be devastating: loss of monthly income support, loss of healthcare coverage, and potentially loss of access to Georgia-specific Medicaid waiver programs like the New Options Waiver (NOW) and the Elderly and Disabled Waiver Program (EDWP) that provide critical home and community-based services.
A special needs trust prevents this outcome. Assets held inside a properly drafted and administered special needs trust are not counted as the beneficiary’s own resources for SSI and Medicaid eligibility purposes. The trustee manages the funds and makes distributions for the beneficiary’s supplemental needs, and the beneficiary’s government benefits remain intact.
The key question is which type of trust to use — and that depends on where the money is coming from.
First-Party Special Needs Trusts
A first-party special needs trust (sometimes called a self-settled trust or a d4A trust) is funded with the disabled individual’s own assets. These are assets that belong to the person with the disability — not to a parent, grandparent, or other family member.
The most common situations where a first-party trust is needed include:
Personal injury settlements. If a person with a disability receives a settlement or court award from a personal injury lawsuit, those funds belong to the individual. Without a trust, the settlement could disqualify them from SSI and Medicaid.
Inheritances received directly. If someone leaves an inheritance directly to a person with a disability — rather than to a trust established for their benefit — those assets become the individual’s own property. A first-party trust can be used to shelter those assets and preserve benefits eligibility.
Divorce settlements. Assets received as part of a divorce proceeding belong to the individual and can affect benefits eligibility if not properly managed.
Back payments of benefits. In some cases, a lump-sum payment of past-due disability benefits can push a person over the SSI asset limit.
Legal Requirements Under Federal Law
First-party special needs trusts are authorized by federal law under 42 U.S.C. § 1396p(d)(4)(A), which is part of the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93). To qualify, the trust must meet several specific requirements:
The beneficiary must be under 65 years of age at the time the trust is funded. The beneficiary must meet the Social Security Administration’s definition of disabled. The trust must be established by the beneficiary (if they are a competent adult), or by a parent, grandparent, legal guardian, or a court. The trust must be irrevocable — the beneficiary cannot change its terms or dissolve it. The trust must be for the “sole benefit” of the disabled individual, meaning no other person can benefit from the trust during the beneficiary’s lifetime. And critically, the trust must contain a Medicaid payback provision.
The Medicaid Payback Requirement
This is the most significant characteristic that distinguishes a first-party trust from a third-party trust. When the beneficiary of a first-party special needs trust passes away, any assets remaining in the trust must first be used to reimburse the state — in Georgia, this means the Georgia Department of Community Health, which administers the state’s Medicaid program — for the total amount of Medicaid benefits paid on the beneficiary’s behalf during their lifetime.
Only after the state has been fully reimbursed can any remaining assets be distributed to other beneficiaries, such as the disabled person’s siblings, children, or other family members.
In practical terms, this means a first-party trust may have little or nothing left for other family members after the Medicaid payback is satisfied, depending on the size of the trust and the amount of Medicaid services the beneficiary received over their lifetime. This is a real trade-off, but it’s often still worthwhile because the alternative — having the individual lose SSI and Medicaid eligibility — is typically far more costly.
Pooled Trusts: An Alternative First-Party Option
For individuals who are 65 or older at the time they need to shelter their own assets, a first-party d4A trust is generally not available. Instead, federal law under 42 U.S.C. § 1396p(d)(4)(C) authorizes pooled trusts, which are managed by nonprofit organizations. In Georgia, the Georgia Community Trust is one such organization that operates a pooled trust for residents with disabilities.
In a pooled trust, the individual’s assets are placed into a separate account within a larger, combined fund managed by the nonprofit. The nonprofit serves as trustee and makes distributions for the beneficiary’s supplemental needs. When the beneficiary passes away, the remaining funds in their account may be retained by the nonprofit organization or, in some cases, returned to reimburse Medicaid — depending on the specific terms of the pooled trust and whether the transfer was made before or after the beneficiary turned 65.
Pooled trusts can also be a cost-effective option for individuals whose assets are too modest to justify the expense of establishing and administering a standalone first-party trust.
Third-Party Special Needs Trusts
A third-party special needs trust is funded with assets that belong to someone other than the beneficiary. This is typically a parent, grandparent, other family member, or friend who wants to leave money or property to a person with a disability without jeopardizing their government benefits.
Third-party trusts are the most common type of special needs trust used in estate planning, and they offer several significant advantages over first-party trusts.
Who Can Create a Third-Party Trust?
Virtually anyone can create and fund a third-party special needs trust for the benefit of a person with a disability. Parents and grandparents are the most common grantors, but siblings, aunts, uncles, family friends, and even employers can contribute to the trust.
Under Georgia law, a third-party special needs trust can be created as a standalone living trust (established during the grantor’s lifetime) or as a testamentary trust (created through a will and taking effect upon the grantor’s death). It can be either revocable or irrevocable during the grantor’s lifetime, though the beneficiary should not have the power to revoke the trust — if they do, the trust assets could be counted as the beneficiary’s own resources, defeating the purpose of the trust.
No Medicaid Payback Requirement
This is the single most important difference between a third-party trust and a first-party trust. Because the assets in a third-party trust never belonged to the beneficiary, federal law does not require that the trust reimburse Medicaid when the beneficiary passes away.
When the beneficiary of a third-party special needs trust dies, the remaining assets in the trust are distributed according to the grantor’s instructions — to other family members, to the beneficiary’s children, to a charity, or to any other person or organization the grantor has named. The state has no claim against the remaining trust assets.
This makes third-party trusts significantly more attractive from a family wealth planning perspective. The assets the grantor places into the trust can continue to benefit the broader family even after the disabled beneficiary is gone, rather than being consumed by Medicaid reimbursement.
Greater Flexibility in Trust Design
Third-party trusts generally offer more flexibility in how they can be structured. The grantor can:
Give the trustee broad discretion over distributions, or specify detailed instructions for how funds should be used. Include spendthrift provisions to protect trust assets from creditors (Georgia law under O.C.G.A. § 53-12-80 provides strong spendthrift protections, with an explicit exception that preserves these protections for special needs trusts even when they would otherwise be subject to certain creditor claims). Name remainder beneficiaries — the people who will receive whatever is left in the trust after the disabled beneficiary passes away. Fund the trust during their lifetime, through their will, or both. Allow multiple family members to contribute to the trust over time, such as grandparents adding funds through annual gifts.
No Age Restriction
Unlike first-party trusts, which generally require the beneficiary to be under 65 at the time the trust is funded, there is no age restriction for third-party special needs trusts. A parent can establish a third-party trust for an adult child with a disability at any age.
Key Differences at a Glance
Understanding the differences between first-party and third-party trusts is easier when the key features are laid out side by side.
Funding source. A first-party trust is funded with the disabled individual’s own assets. A third-party trust is funded with assets belonging to someone else, such as a parent or grandparent.
Medicaid payback. A first-party trust must include a provision requiring the state to be reimbursed for Medicaid benefits paid on the beneficiary’s behalf after the beneficiary’s death. A third-party trust has no such requirement, and remaining assets can go to other beneficiaries chosen by the grantor.
Age restriction. A first-party d4A trust generally requires the beneficiary to be under 65 at the time of funding. A third-party trust has no age restriction.
Who can create it. A first-party trust can be established by the beneficiary (if competent), a parent, grandparent, legal guardian, or a court. A third-party trust can be created by anyone.
Revocability. A first-party trust must be irrevocable. A third-party trust can be revocable during the grantor’s lifetime, though the beneficiary should not have the power to revoke it.
Remainder beneficiaries. With a first-party trust, remaining assets go first to reimburse Medicaid, with any remainder going to designated beneficiaries. With a third-party trust, remaining assets go entirely to the grantor’s chosen beneficiaries, free of any Medicaid claim.
What Can a Special Needs Trust Pay For?
Regardless of whether it’s a first-party or third-party trust, the trustee can use trust funds to pay for a wide range of supplemental needs that government programs do not cover. These typically include:
Supplemental medical and dental care not covered by Medicaid. Physical therapy, rehabilitation, and alternative treatments. Assistive devices, wheelchairs, and adaptive equipment. Vehicle modifications and transportation costs. Computer equipment, tablets, phones, and internet access. Education and vocational training. Recreation, entertainment, and travel (including the cost of a companion). Clothing, personal care items, and household furnishings. Home modifications for accessibility. Costs associated with maintaining a personal care attendant.
The critical rule is that the trust should supplement, not replace, government benefits. Distributions for basic food and shelter expenses — which SSI is designed to cover — can reduce the beneficiary’s SSI benefit. Cash payments directly to the beneficiary are treated as unearned income by the Social Security Administration, which can also reduce benefits. For this reason, most trustees pay for goods and services directly to the provider rather than giving cash to the beneficiary.
Coordination Is Essential
One of the most common mistakes families make is failing to coordinate their broader estate plan with the special needs trust. If a grandparent’s will, a life insurance policy, or a retirement account names the disabled individual directly as a beneficiary — rather than naming the trust — those assets will go directly to the person with the disability, potentially disqualifying them from benefits.
Every family member who might leave assets to the person with a disability should be made aware of the special needs trust and should name the trust (not the individual) as the beneficiary on wills, life insurance policies, retirement accounts, and any other estate planning documents. This includes parents, grandparents, siblings, aunts, uncles, and close family friends.
Similarly, if the disabled individual receives their own assets — such as a personal injury settlement or an inheritance that was not directed to a trust — a first-party trust or pooled trust should be established promptly to shelter those assets before benefits eligibility is affected. Georgia’s Medicaid look-back period is five years for asset transfers, so timing matters.
Choosing the Right Trustee
The trustee of a special needs trust plays a critical role. They must understand the complex rules governing SSI and Medicaid eligibility, know which types of distributions are permissible and which could jeopardize benefits, keep meticulous records, file any required tax returns, and act in the beneficiary’s best interest at all times.
For smaller trusts, a trusted family member may serve as trustee, though the learning curve can be steep and the responsibility significant. For larger trusts or more complex situations, a professional trustee — such as a bank trust department, a corporate fiduciary, or in the case of a pooled trust, the nonprofit organization that manages the fund — may be the better choice.
Many families use a combination: a family member who understands the beneficiary’s personal needs works alongside a professional trustee or trust advisor who handles the financial and compliance aspects.
How Yeom Baek Can Help
Planning for a family member with special needs requires more than good intentions — it requires precision. The rules governing special needs trusts are complex, and a mistake in how the trust is drafted, funded, or administered can result in the loss of benefits that your loved one depends on.
At Yeom Baek, our estate planning attorneys work with Georgia families to create special needs trusts that are tailored to each family’s unique situation. Whether you need a third-party trust to protect assets you plan to leave to a disabled child, a first-party trust to shelter a settlement or inheritance, or guidance on how to coordinate a special needs trust with your broader estate plan, we can help.
Our special needs planning services include:
- Drafting first-party and third-party special needs trusts compliant with federal and Georgia law
- Advising on trustee selection and trust administration
- Coordinating trust planning with wills, beneficiary designations, and other estate planning documents
- Guiding families through Medicaid eligibility and the impact of trust distributions on SSI benefits
- Reviewing and updating existing trusts to reflect changes in the law or the beneficiary’s circumstances
Your loved one’s financial security and quality of life are too important to leave to chance. Contact Yeom Baek today to schedule a consultation and start building the plan that protects them.
At Yeom Baek, we prioritize your family’s future. Schedule your estate planning consultation today and take control of your legacy.
This blog post is for general informational purposes only and does not constitute legal advice. Special needs trust planning involves complex interactions between federal and state law. For guidance specific to your situation, please consult with a qualified estate planning attorney licensed in Georgia.
