New Rules for Special Needs Trusts (2024–2026 Update): What Changed + What to Do

Last updated: January 2026

If you or a loved one lives with a disability, you may already know how a special needs trust can help maintain eligibility for certain public benefits. These unique trusts allow individuals with disabilities to set aside funds for their needs without losing access to vital programs like Medicaid and Supplemental Security Income (SSI).

Recently, several important changes and clarifications have affected how special needs trusts are established and, more importantly, how trustees administer distributions while a beneficiary receives SSI and Medicaid. Anyone administering a special needs trust (or looking to establish one) should understand the rules to avoid preventable benefit reductions.

Let’s break down key updates regarding special needs trusts and provide tips to make the most of these important planning tools in 2024–2026 and beyond.

Key Changes in the Latest Rules for Special Needs Trusts

Some of the most notable changes in federal law, under The Special Needs Trust Fairness Act of 2016, affect first-party special needs trusts in particular. First-party trusts are funded with assets belonging to the person with disabilities. Common sources include lawsuit settlements, inheritances received by the individual, or work earnings.

Some key things to note about the rules include:

Individuals with special needs can now establish their own first-party special needs trust without the need for a third party or going through the courts. This is a major change that enables more independence.

Trusts established by the person with special needs can have the same benefits as those set up by parents, grandparents, guardians, etc., when structured properly.

To qualify as a (d)(4)(A) first-party trust, the trust generally must be established for a person under age 65, funded with the disabled individual’s assets, and contain a Medicaid payback provision upon death.

A major goal of this law change is to increase the independence and empowerment of people with special needs by making it easier and more affordable to establish these trusts.

The rules have made it easier for individuals to establish their own first-party special needs trusts. However, guidelines must still be followed to preserve eligibility for government benefits. While first-party trusts are now more accessible, other types of special needs trusts remain important options as well.

The needs, sources of funding, and family situation determine which type of trust is most appropriate. Next, we will explore the differences between first-party, third-party, and pooled special needs trusts in more detail.

Types of Special Needs Trusts

Special needs trusts are an important tool for providing supplemental support while preserving eligibility for government benefits. There are a few main options when establishing a special needs trust, each with its own rules, benefits, and drawbacks. Choosing the right trust starts with understanding the different types available.

There are several options when establishing a special needs trust. The three main types are first-party, third-party, and pooled trusts.

First-Party Trusts

A first-party special needs trust is funded with assets belonging to the person with disabilities. Federal law changes have made it possible for the individual to establish certain first-party trusts themselves, but strict requirements still apply.

Third-Party Trusts

Third-party special needs trusts are funded by family members or others for the benefit of the individual with disabilities. Parents often establish these trusts to provide for children without jeopardizing government benefits.

Pooled Trusts

Pooled special needs trusts are administered by nonprofits and pool funds from many sources. This option is often used when the family isn’t available to establish a trust or when professional management is preferred. Pooled trusts may involve administrative fees but can provide long-term structure and oversight.

The optimal trust depends on the beneficiary’s needs, assets, and family support. Consulting a special needs planner helps determine the best trust for securing care while maintaining eligibility for public benefits.

Setting Up a First-Party Special Needs Trust Under the Rules

The rules have made it easier for individuals with special needs to establish certain first-party trusts. However, careful steps must be taken to ensure the trust complies with regulations.

First, work with an experienced special needs attorney. The intricacies of federal law regarding these trusts require professional guidance to navigate properly.

Make sure you follow the age and funding guidelines. For a (d)(4)(A) trust, the beneficiary generally must be under 65 when the trust is established, and the trust must be funded with the beneficiary’s own assets (for example, a settlement) and include a Medicaid payback provision.

Strict procedures apply when funding the trust. Assets must be retitled in the trust’s name (not the individual’s) to help preserve benefit eligibility. Our attorneys at Shields Law can help you fund the trust properly.

Additionally, name a trustee who understands the beneficiary’s needs, whether a family member or professional fiduciary. Following the rules carefully helps the trust meet requirements and helps protect access to vital government benefits. With proper guidance, the regulations can make securing a loved one’s future care more accessible.

Maintaining Eligibility and Benefits with a Special Needs Trust

Preserving your loved one’s eligibility for government benefits is one of the primary functions of a special needs trust. Medicaid and SSI provide vital support, so keeping that access is crucial.

Here are some best practices for trustees to maintain benefits:

Keep meticulous records. Document trust expenditures and keep receipts so distributions can be explained clearly if benefits are reviewed or redetermined.

Make appropriate distributions. For SSI purposes, food is no longer included in ISM calculations as of 09/30/2024, but shelter/housing support can still reduce SSI depending on the beneficiary’s living arrangement and how payments are made. When in doubt—get guidance before making housing-related payments. (SSA rule | SSA PolicyNet)

Consult frequently with the beneficiary’s support team. Collaborate with their case manager, doctors, and other professionals to understand current needs.

Be aware of payment procedures. Reimbursing beneficiaries directly can create avoidable complications. When possible, trustees should pay vendors directly.

Seek professional guidance. An elder law or special needs planning attorney can provide invaluable advice regarding distributions.

Following these guidelines conscientiously will help ensure your special needs trust beneficiary keeps vital public assistance while enjoying supplemental support from trust funds.

The Latest Chapter for Special Needs Trusts

Recent updates and clarifications emphasize a key truth: special needs trusts work best when the trust document and trustee’s distribution practices align with current benefit rules. While the core purpose remains the same—providing supplemental support outside of public benefits for individuals with disabilities—the details that matter in real life can evolve.

Staying up-to-date on the latest rules and understanding their real-world impacts will help ensure your special needs trust continues working as intended. As with any complex legal process, guidance from an attorney well-versed in special needs trusts can prove invaluable every step of the way.

To explore how a special needs trust may help provide for your child or other loved one with disabilities, be sure to contact Shields Law. Our attorneys have extensive experience as counselors and advocates for Texas families planning for special needs. Contact us today to schedule a discovery call.

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If you’re unsure how these rules apply to your trust or if you need to begin the planning process, a quick 15 minute call can get tings started.