The Special Needs Trust in 2026: Insights, Updates, and Best Practices

Attorney RJ Connelly III Certified Elder Law Attorney Professional Fiduciary

Establishing a special needs trust is one of the most important steps families and caregivers can take to ensure the financial security and well-being of loved ones with disabilities. A well-drafted trust preserves eligibility for crucial government benefits while providing additional support for quality of life. However, the process is complex, and even small errors can have significant consequences. In this blog post, we explore the special needs trust in 2026, sharing insights from professional fiduciary and certified elder law Attorney RJ Connelly III, clarifying permissible expenditures, and highlighting recent updates in the field. Our goal is to provide families, caregivers, and attorneys with practical guidance to avoid pitfalls and achieve the best outcomes for those they support.

A Rhode Island Family's Journey: Finding Peace of Mind

To illustrate the transformative impact of a special needs trust, consider the story of a Rhode Island family. When their son, Ethan, was diagnosed with autism at a young age, Sarah and Michael felt as though the ground had shifted beneath their feet.

Suddenly, their daily routines became a complex web of medical appointments, therapy sessions, and the search for adaptive resources that could help Ethan thrive. The uncertainty of his future weighed heavily on their hearts, and every financial decision seemed fraught with the risk of unintentionally jeopardizing Ethan’s access to essential government assistance programs.

Sarah and Michael devoted countless hours to researching ways to support Ethan’s specialized therapies, adaptive technology, and personal support. They combed through forums, attended workshops, and spoke with other families who faced similar challenges. Despite their efforts, they remained anxious about the possibility that a well-intentioned gift or inheritance could compromise Ethan’s eligibility for SSI or Medicaid—benefits that were crucial to his long-term well-being. The emotional toll of these concerns was immense, as they struggled to balance their desire to provide for Ethan’s needs with the legal and financial complexities that accompanied his diagnosis.

After years spent seeking guidance and clarity, the family met with Attorney Connelly, whose expertise proved invaluable. He approached their situation with empathy and professionalism, listening intently to their concerns and aspirations for Ethan. He explained the intricacies of special needs trusts in a way that was both accessible and reassuring, emphasizing the importance of a carefully constructed plan. Together, they worked to design a trust tailored specifically to Ethan’s unique requirements—allowing funds to be used for communication devices, summer camps, transportation to therapy appointments, and other enriching experiences that would enhance Ethan’s independence and quality of life.

“A properly structured special needs trust is not just a financial tool. It’s a lifeline that ensures ongoing dignity and independence for the beneficiary,” Connelly reminds his clients. For Sarah and Michael, these words carried profound meaning. The trust was more than a legal document; it represented a promise that Ethan would have access to the support and opportunities he deserved, regardless of what the future held. By working closely with Attorney Connelly, the family gained clarity, confidence, and the ability to make thoughtful decisions for their son without fear of unintended consequences.

As a result, the family experienced a sense of peace and empowerment that had eluded them for years. They no longer worried that their efforts to secure Ethan’s comfort and happiness might inadvertently compromise his access to vital benefits. Instead, they could focus on nurturing Ethan’s strengths, supporting his development, and celebrating his milestones—secure in the knowledge that his special needs trust would safeguard his well-being for years to come. This family's experience is a testament to the profound impact that compassionate, professional guidance can have on families navigating the complexities of special needs planning.

Understanding the Importance of Special Needs Trusts

A special needs trust is designed to supplement—not replace—government benefits such as Supplemental Security Income (SSI) and Medicaid. These trusts allow assets to be set aside for a beneficiary with disabilities without jeopardizing their eligibility for public assistance. The trust can pay for things that improve the beneficiary's quality of life, including education, recreation, medical expenses not covered by insurance, and personal care services. As Attorney Connelly emphasizes, "A properly structured special needs trust is not just a financial tool. It's a lifeline that ensures ongoing dignity and independence for the beneficiary."

Common Mistakes in Creating Special Needs Trusts

Despite their importance, mistakes in drafting and funding special needs trusts are frequent and can have lasting negative effects. One of the most common errors is failing to use the correct type of trust. There are first-party and third-party trusts, and choosing the wrong one can result in unintended tax consequences or loss of benefits. Another mistake is failing to update the trust as laws and regulations change. Attorney Connelly notes, "I've seen trusts drafted years ago that no longer comply with current requirements. Regular reviews are essential."

Improper funding is another issue. Families often mistakenly place assets in the beneficiary's name, which can disqualify the beneficiary from benefits. "Assets should be transferred into the trust, not given outright," explains Connelly. Additionally, vague or overly restrictive language in the trust document can limit the trustee's ability to respond to the beneficiary’s evolving needs. Failing to name a successor trustee is also a frequent oversight, leaving the trust vulnerable if the original trustee becomes unable to serve.

Another critical mistake is neglecting to coordinate the special needs trust with other estate planning documents. For example, failing to update wills or beneficiary designations on life insurance policies can result in assets bypassing the trust entirely. "Integrating the trust with your broader estate plan ensures that all resources intended for the beneficiary are properly managed," says Connelly.

Special Needs Trustees - Family or Professional

When establishing a special needs trust, selecting the right trustee is a critical decision. Trustees may be family members or professionals, and each option brings distinct advantages and disadvantages.

Choosing a family member as a trustee offers several benefits. Family trustees typically have personal knowledge of the beneficiary’s needs, preferences, and history, allowing for decisions that are deeply informed and tailored. Administrative costs can be lower, as family members often serve without compensation. Their emotional investment in the beneficiary’s well-being can enhance their motivation to act in the beneficiary’s best interests. However, there are notable drawbacks. Family trustees may lack the expertise to navigate complex trust and government benefit regulations, thereby complicating administration. Additionally, mismanagement is possible due to inexperience or shifting family circumstances.

Appointing a professional trustee offers several distinct advantages. Professionals possess specialized expertise in trust administration, investment management, and navigating the complex regulations surrounding public benefits. Their objectivity and impartiality can help minimize family conflicts, and as regulated entities, they are often insured or bonded, which adds an extra layer of security. While administrative costs tend to be higher and response times may not be as quick as with a family trustee, there is reassurance in knowing that your finances are managed by experienced professionals operating under strict legal oversight. This peace of mind can be invaluable when safeguarding assets and ensuring compliance.

"Some families opt for a combination, appointing a family member as co-trustee alongside a professional to balance personal knowledge with professional expertise," said Attorney Connelly. "Ultimately, the best choice depends on the beneficiary's specific needs, family dynamics, and the trust's complexity."

Permissible Expenditures from a Special Needs Trust

One of the most frequent questions from families and caregivers is, "What can the trust pay for?" Permissible expenditures are those that enhance the beneficiary's quality of life without affecting their eligibility for government benefits. These include medical and dental care not covered by insurance, assistive technology, education, transportation, recreation, and personal care services.

Trust funds can also be used for home modifications, adaptive equipment, and travel costs. However, it is crucial to avoid paying for shelter expenses, as doing so may reduce SSI benefits. Attorney Connelly cautions, "Trustees must understand the rules governing what constitutes a permissible expense. Misuse, even unintentionally, can have serious repercussions." He recommends consulting with an attorney or financial advisor before making significant disbursements.

Recent Updates and Changes in Special Needs Trusts

In the past five years (2021–2026), special needs trusts (SNTs) have undergone several meaningful changes aimed at empowering individuals with disabilities and improving financial planning options. Here are expanded details on the most significant developments:

Self-Established First-Party SNTs: Historically, federal law required that a parent, grandparent, legal guardian, or the court establish a first-party SNT for a disabled person. Recent legislative changes now allow disabled individuals to create these trusts themselves. This shift greatly enhances personal autonomy, streamlining the process and offering greater privacy and control over asset management.

SECURE Act 2.0 – Charitable Beneficiaries: Previously, SNTs faced restrictions on naming charities as remainder beneficiaries, especially when retirement accounts were involved. The SECURE Act 2.0, signed into law in late 2022, eases these rules, permitting SNTs to designate charitable organizations as beneficiaries without losing favorable tax treatment or triggering unintended consequences. This change adds flexibility for families interested in philanthropic giving through their estate plans.

Expanded ABLE Account Eligibility (2026): ABLE accounts are tax-advantaged savings vehicles for individuals with disabilities. Until recently, eligibility was limited to those whose disability onset occurred before age 26. Starting this year, federal law expands this threshold, allowing individuals with disabilities who began before age 46 to open ABLE accounts. This broadens access to these accounts—a major step, as it covers a significantly larger population of adults living with disabilities.

Improved Coordination with Retirement Accounts: Ongoing legislative updates have clarified and simplified how SNTs interact with inherited IRAs and other retirement accounts. This includes guidance ensuring SNTs can maintain "see-through" status, allowing distributions to benefit disabled beneficiaries directly without adverse tax consequences.

Greater Emphasis on Person-Centered Planning: Recent reforms encourage trust structures and estate planning that focus on the unique needs and preferences of the disabled individual, rather than a one-size-fits-all approach. This includes more flexible trust provisions, consideration of social services, and integration with government benefits.

State-Level Innovations: Many states have harmonized definitions, streamlined approval processes, and enabled electronic filing and maintenance of SNTs. Some have introduced pilot programs to increase education and outreach regarding SNTs and ABLE accounts.

As of September 30, 2024, the Social Security Administration (SSA) no longer considers food as “In-Kind Support and Maintenance” (ISM). This change allows trustees of Special Needs Trusts (SNTs) to buy food for beneficiaries without reducing their Supplemental Security Income (SSI) benefits.

Collectively, these changes mark a substantial improvement in both the legal landscape and practical usability of SNTs for disabled individuals and their families, offering greater autonomy, expanded financial planning options, and enhanced access to resources.

Attorney Connelly highlights, "We've seen increased flexibility in how trusts can be structured, and new guidance on permissible expenditures. It's more important than ever to stay current with these changes." Recent state-level reforms have also affected Medicaid eligibility and trustee responsibilities, emphasizing the need for ongoing legal review. Connelly advises, "Families should not assume that a trust drafted five or ten years ago is still compliant. Regular updates are essential to protect the beneficiary."

Keeping an Eye on Legislation

The following proposals have recently been introduced in Congress but have not been enacted into law at this time. Please do not base your planning decisions solely on these proposals. Instead, continue to plan under the current law and be prepared to adjust your strategy should any of these proposals become law.

The SSI Savings Penalty Elimination Act was reintroduced in April 2025 with bipartisan support. If enacted, it would raise the individual SSI asset limit from $2,000 to $10,000 and the couple limit from $3,000 to $20,000, permanently indexing these limits to inflation. The current $2,000 limit has remained unchanged since 1989—37 years without adjustment—and, if adjusted for inflation, would be approximately $5,200 today. For families, this proposed increase could mean that those with modest assets may no longer need a trust, but families with more than $10,000 in assets for their loved one’s care would still require a special needs trust. It’s important not to delay trust planning while waiting for this legislation to pass, as the bill has been introduced multiple times over several years without becoming law.

Another issue is the SSI Marriage Penalty. Currently, when two SSI recipients marry, their combined asset limit drops from $4,000 ($2,000 each) to $3,000, and their combined payment decreases by roughly 25%. Several bills have been proposed to eliminate this penalty, but none have been enacted. This marriage penalty often leads couples with disabilities to avoid legal marriage; however, a special needs trust can help protect individual assets regardless of whether this penalty is eventually eliminated.

The Medicaid Estate Recovery Repeal, through the Stop Unfair Medicaid Recoveries Act (introduced January 2026), seeks to eliminate the federal requirement that states recover Medicaid costs from deceased recipients’ estates. Currently, this requirement is why first-party trusts must include a Medicaid payback clause—when the beneficiary dies, the state is reimbursed for Medicaid services before any remaining trust assets pass to heirs. If the proposed repeal passes, first-party trusts would no longer require Medicaid payback, making them significantly more attractive, though passage is uncertain due to expected opposition as estate recovery generates revenue for states. Estate recovery rules vary widely by state: some states only recover from probate assets, which is favorable for trusts, while others pursue non-probate assets more aggressively. It is essential to consult your state guide to understand how estate recovery is handled in your state.

"While it is important to be aware of potential developments, my current recommendations are grounded in existing law," said Attorney Connelly. "We will continue to monitor these proposals and advise you promptly should any new laws be enacted. Until then, we encourage you to make decisions based on the legal framework as it stands today, and I urge you to advocate for these changes with your federal elected officials."

A Final Word

Creating a special needs trust is a complex process that demands careful planning and professional expertise. Families, caregivers, and attorneys must work together to avoid common mistakes, ensure proper funding, and keep documents up to date as laws evolve.

As Attorney Connelly concludes, "A special needs trust is more than paperwork—it's a promise to secure your loved one's future. Invest the time and resources to do it right." The key to success lies in seeking qualified legal counsel, maintaining clear records, and regularly reviewing the trust in light of new regulations. By following these best practices, families can provide lasting support and security for individuals with special needs, empowering them to live with dignity and independence.

The materials and information presented in this blog are intended solely for general informational purposes and should not be interpreted as legal, financial, or healthcare advice. The content may not reflect the latest developments, regulations, or best practices in these fields, and as such, should not be relied upon for making personal or professional decisions. This blog may include links to third-party websites provided strictly for the convenience of our readers; Connelly Law neither endorses nor guarantees the accuracy or reliability of external content. Case studies shared herein are anonymized, contain no identifying information, and may be amalgamated from multiple cases for illustrative purposes only. Given the complexities of legal, financial, and healthcare matters, we strongly recommend consulting a qualified attorney, a professional fiduciary advisor, or a healthcare provider for guidance tailored to your specific circumstances. Your well-being and ability to make informed decisions remain our utmost priority.