Maryland Estate Planning: Special Needs Trusts and Probate

Why Special Needs Trusts Matter in Maryland

A Special Needs Trust (SNT) can allow you to provide for a beneficiary with a disability without jeopardizing means-tested public benefits such as Supplemental Security Income (SSI) and Medicaid, provided the trust is properly drafted and administered. An SNT can enhance quality of life by covering supplemental needs like certain therapies, assistive technology, transportation, education, or personal care while preserving eligibility for critical benefits. See the Social Security Administration’s guidance on how trusts affect SSI and related resource rules for context (SSA Spotlight on Trusts; 42 U.S.C. § 1382b), and federal Medicaid trust rules (42 U.S.C. § 1396p).

In Maryland, SNTs are typically integrated into broader estate plans that also address powers of attorney, health care decision-making, guardianship or supported decision-making, and probate planning.

Types of Special Needs Trusts

• Third-party SNTs. Funded with assets belonging to someone other than the beneficiary (for example, a parent or grandparent). These are often created under a will or a revocable living trust. Unlike first-party SNTs, there is generally no federal Medicaid payback requirement if the trust is funded exclusively with third-party assets and properly structured; the trust can name remainder beneficiaries. SSI treatment still depends on trust terms and administration (SSA Spotlight on Trusts).
• First-party (self-settled) SNTs. Funded with the beneficiary’s own assets (for example, an injury settlement or inheritance received outright). To preserve Medicaid eligibility, federal law requires these trusts to provide for reimbursement to the state Medicaid program up to the amount of medical assistance paid upon the beneficiary’s death (42 U.S.C. § 1396p(d)(4)(A)).
• Pooled trusts. Managed by a nonprofit that pools funds for investment while maintaining separate sub-accounts for each beneficiary. Pooled trusts can be useful where a professional trustee is desired or when funding is modest; payback rules vary by whether the funds are first-party or third-party and by the pooled trust’s governing instrument (42 U.S.C. § 1396p(d)(4)(C)).

Key Legal Framework

SNTs sit at the intersection of federal benefits law and Maryland trust law. Federal statutes and regulations governing SSI and Medicaid set the eligibility rules and how trust assets and distributions are treated. Maryland’s Estates and Trusts Article provides the state framework for creating and administering trusts, trustee duties, and court oversight when applicable (Md. Code, Estates & Trusts). Trust terms must align with SSI and Medicaid requirements to avoid trust assets being counted as resources.

Drafting Considerations for Maryland SNTs

• State clearly that distributions are discretionary and intended to supplement, not supplant, government benefits.
• Prohibit routine cash distributions that could be treated as income for SSI, and address in-kind support and maintenance carefully (SSA Spotlight on Trusts).
• Include trustee powers tailored to Maryland law (investment, accounting, employing care managers/benefits coordinators, and tax compliance).
• Address successor trustees, bond, compensation, and removal/replacement procedures.
• Coordinate with beneficiary designations, life insurance, retirement accounts, and any ABLE accounts.
• Define remainder provisions consistent with whether the trust is third-party (generally no Medicaid payback) or first-party (Medicaid payback as required by federal law).

Funding Strategies and Coordination

Common funding sources include lifetime gifts from family, bequests under a will, transfers from a revocable living trust, life insurance death benefits, and retirement plan proceeds directed by beneficiary designation. To avoid jeopardizing benefits, it is usually better not to leave assets outright to the beneficiary; instead, name the SNT on beneficiary forms and in testamentary documents. Where retirement accounts are involved, consider tax timing and required distributions; coordinated planning among the drafting attorney, tax advisor, and plan custodian is prudent.

Trustee Selection and Administration

Trustees must understand both Maryland fiduciary duties and federal benefits rules. Many families appoint a professional co-trustee or use a pooled trust to help ensure compliant administration. Trustees should:

• Maintain records and accountings consistent with Maryland law (Md. Code, Estates & Trusts).
• Evaluate distributions for impact on SSI and Medicaid, including in-kind support and maintenance rules (SSA Spotlight on Trusts).
• Coordinate with benefits specialists to preserve eligibility and manage recertifications.
• Periodically review the trust in light of changes to federal and Maryland law.

How SNTs Interact with Maryland Probate

SNTs are often used to minimize assets that pass through probate and to ensure that inheritances for a beneficiary with a disability are directed to the trust rather than distributed outright. A third-party SNT can be established within a will (testamentary trust) or as a stand-alone trust referenced by a will or revocable living trust. Maryland probate procedures are administered by the Orphans’ Court and the Register of Wills in each county (Maryland Registers of Wills).

Maryland Probate Overview

When a Maryland resident dies owning probate assets, an estate is typically opened with the Register of Wills for the county of domicile. The process generally includes:

• Filing the will (if any) and petition for probate.
• Appointment of a personal representative.
• Notice to interested persons and creditors.
• Inventory and information reports.
• Payment of valid debts, taxes, and expenses.
• Periodic accountings as required.
• Distribution to heirs or devisees.

Certain assets pass outside probate, such as assets titled in a properly funded revocable living trust, jointly titled property with right of survivorship, and accounts with transfer-on-death or beneficiary designations. Coordination of titling and beneficiary designations, including naming an SNT where appropriate, can streamline settlement and protect benefits (Registers of Wills). Non-probate transfers can still have tax or creditor implications depending on the facts.

First-Party SNTs and Court Involvement

First-party SNTs may require court involvement in certain circumstances, particularly when the beneficiary lacks legal capacity or when settlement funds are being placed into trust. Maryland courts may review compliance with federal and state requirements and the beneficiary’s best interests. Typical submissions include medical evidence of disability, proposed trust terms, and identification of a qualified trustee. Which court is involved can depend on the matter at issue (for example, probate versus guardianship).

ABLE Accounts vs. SNTs

Maryland ABLE accounts allow eligible individuals to save for disability-related expenses with favorable tax treatment and without losing certain benefits, subject to annual contribution limits and account caps. They can be used alongside an SNT to provide day-to-day spending flexibility while preserving SNT protections for larger gifts or inheritances (Maryland Attorney General – ABLE Overview).

Common Pitfalls to Avoid

• Leaving assets outright to a beneficiary with a disability instead of to an SNT.
• Making routine cash distributions that reduce SSI.
• Overlooking in-kind support rules for housing and food.
• Failing to coordinate life insurance and retirement account designations with the SNT.
• Not updating trust documents and beneficiary designations as laws and circumstances change.

FAQ

Does a third-party SNT require Medicaid payback in Maryland?

Generally no, if funded exclusively with third-party assets and properly drafted. The trust can name remainder beneficiaries.

Who can create a first-party SNT?

Under federal law, a first-party SNT can be established by the beneficiary, a parent, grandparent, legal guardian, or a court, depending on capacity and facts.

Will an SNT avoid Maryland probate?

Assets already titled to an SNT or a revocable living trust typically avoid probate. Proper beneficiary designations and titling are key.

Can an ABLE account replace an SNT?

Usually no. ABLE accounts are useful for smaller, flexible spending within annual limits; SNTs manage larger gifts and long-term protections.

Getting Started

An effective Maryland plan for a loved one with special needs typically includes a properly drafted SNT, coordinated beneficiary designations, financial and health care powers of attorney, advance directives, and a plan for decision-making support if needed. An attorney can help determine whether a third-party, first-party, or pooled trust fits your goals and guide you through Maryland probate considerations to minimize delays and protect benefits.

Contact our Maryland estate planning team to discuss your specific situation.

Sources

• Social Security Administration – Spotlight on Trusts (SSI) (accessed 2025-10-31)
• 42 U.S.C. § 1382b and related SSI provisions (via SSA resource) (accessed 2025-10-31)
• 42 U.S.C. § 1396p (Medicaid trust and transfer-of-assets rules) (accessed 2025-10-31)
• Maryland Code, Estates and Trusts Article (accessed 2025-10-31)
• Maryland Registers of Wills – Probate Information (accessed 2025-10-31)
• Maryland Attorney General – ABLE Accounts Overview (accessed 2025-10-31)

Disclaimer

This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Maryland law and federal benefits rules change and vary by situation; consult a Maryland attorney about your specific facts.