Leaving Money to Someone on SSI or Medicaid: Why It's a Lawyer Moment

If someone you love has a disability and relies on Supplemental Security Income (SSI) or Medicaid, a well-meant gift in your will can do real harm. This is one of the clearest cases where a standard form isn’t enough.

The $2,000 problem

SSI allows a person to keep only about $2,000 in countable resources. An inheritance, a life insurance payout or a retirement account that lands in their name can push them over that line and end the benefits, and with SSI often the Medicaid coverage that comes with it, until the money is spent down.

The same thing can happen through a beneficiary form. If your life insurance or 401(k) names your son or daughter directly, it goes to them directly, whatever your will says.

The usual answer: a special needs trust

A special needs trust (also called a supplemental needs trust) holds money for the person without it counting as theirs. A trustee you choose spends it on things benefits don’t cover, such as equipment, education, recreation and visits, so the trust adds to the benefits instead of replacing them. The beneficiary never owns the money directly.

There are three kinds:

• Third-party trusts, set up and funded by someone else, most often parents. Usually the most favorable: nothing has to be paid back to Medicaid at the beneficiary’s death, and what is left can pass to other family.
• First-party trusts, funded with the person’s own money, for example a settlement. Federal law requires the person to be under 65 when it is set up and Medicaid to be repaid from what is left.
• Pooled trusts, run by nonprofits with a separate account for each person. Sometimes the only option for someone over 65.

Why it needs a lawyer

These trusts have to be drafted carefully: language that the trust supplements and doesn’t replace benefits, no payments straight to the beneficiary, and protection from creditors. The trustee must understand the benefit rules. And everything else has to point the same way. Tell family not to leave money to the person directly, and make your will, life insurance and retirement accounts name the trust, not the person.

That is why we plan these situations with you directly, not through the online workbook alone. In the meantime you can still sign your own health care proxy, living will and financial power of attorney, which protect you and don’t affect anyone’s benefits.

Is this you?

You may not need one if no one in your family is on, or likely to need, SSI or Medicaid. Not every disability involves benefits with an asset limit. If you’re unsure, it’s a short question for a lawyer, and worth asking before you sign a will.

Sources: Social Security Administration, SSI resource limits (20 CFR § 416.1205); 42 U.S.C. § 1396p(d)(4) (OBRA ‘93 first-party and pooled trusts); practitioner literature summarized in KEE Planned household research (2026).

This article provides general educational information and is not legal advice. Consult a licensed attorney, ideally one who practices special needs or elder law, about your family’s situation.