A Comprehensive Legal Summary | Updated June 2026
Introduction and Definition
A Special Needs Trust (SNT) is a specific type of trust designed to hold assets for a person with a disability. These trusts are structured so that the funds are not counted as available resources when determining eligibility for means-tested programs like Medicaid and SSI. This allows the beneficiary to receive supplemental support — such as personal care attendants, therapy, education, and recreational activities — without risking their government assistance.
In Indiana, SNTs are governed primarily by federal law (42 U.S.C. § 1396p(d)(4)), Social Security Administration policy, and Indiana’s Trust Code (Indiana Code Title 30, Article 4). Indiana has adopted several statutory enhancements — most notably a trust decanting law — that provide important planning flexibility not available in every state.
Types of Special Needs Trusts
Indiana recognizes three main types:
First-Party (Self-Settled) Special Needs Trusts
A first-party trust is funded with money that already belongs to the person with special needs — most commonly from a personal injury settlement, inheritance, or back-payment of disability benefits. Key requirements under Indiana law include:
- The beneficiary must be under age 65 at the time the trust is established.
- The trust must be irrevocable.
- The trust must be established by the beneficiary themselves, a parent, grandparent, legal guardian, or a court.
- The trustee must be granted sole and absolute discretion over distributions — the trust cannot contain an ascertainable standard obligating payments.
- The trust must include a Medicaid payback provision: upon the beneficiary’s death, Indiana Medicaid must be reimbursed for benefits paid during the beneficiary’s lifetime before any remaining funds pass to heirs.
Third-Party Special Needs Trusts
A third-party SNT is funded with assets belonging to someone other than the beneficiary — typically parents, grandparents, or other family members as part of an estate plan. Third-party trusts do not carry a Medicaid payback requirement, making them the preferred vehicle when family members are contributing funds. The grantor retains full control over who receives any remaining assets at the beneficiary’s death.
Importantly, Indiana law prohibits using the beneficiary’s own assets to fund a third-party SNT. Doing so could trigger Medicaid transfer penalty rules and defeat the purpose of the trust.
Pooled Special Needs Trusts
Pooled trusts are administered by nonprofit organizations and allow sub-accounts to be established for individual beneficiaries whose funds are collectively invested. Indiana’s most prominent pooled trust is The Arc of Indiana Master Trust, one of the first pooled trusts in the country, operating since 1988. SWIRCA & More, based in Evansville, also offers a pooled trust serving older Hoosiers and those with disabilities in Southwestern Indiana.
Pooled trusts can accept both first-party and third-party funds. First-party pooled accounts require Medicaid payback upon the beneficiary’s death, though federal law permits the nonprofit to retain a portion of remaining funds. Third-party pooled accounts carry no payback requirement.
Under federal SSI rules, a pooled trust cannot be established for a beneficiary age 65 or older without triggering an improper transfer penalty under the SSI program — even though Indiana law may otherwise permit it. Families should consult a qualified attorney before establishing a pooled trust for an older beneficiary.
Requirements for Legal Compliance
For assets in an SNT to be non-countable for Medicaid and SSI purposes, the trust must meet strict structural requirements:
- The disabled beneficiary cannot serve as trustee of their own first-party SNT.
- The beneficiary cannot have the right to withdraw assets from the trust at will.
- Distributions may be made only in the sole and absolute discretion of the trustee — the trust cannot include an ascertainable standard (such as “health, education, maintenance, or support”) that obligates the trustee to make payments.
- The trust must be structured to “supplement, not supplant, impair, or diminish” public benefits to which the disabled person may otherwise be entitled.
- First-party trusts must be irrevocable and must contain a valid Medicaid payback provision.
Indiana’s Trust Decanting Law (IC § 30-4-10-43, enacted 2022) allows a trustee with discretionary authority to transfer assets from an existing standard trust into a new or amended special needs trust — preserving the beneficiary’s government benefit eligibility. This powerful tool can often be used without going to court and may rescue a trust that was not originally drafted as an SNT.
Indiana courts must also consider supported decision-making before appointing a guardian (IC § 29-3-14, enacted 2019). Where a guardianship is in place, court approval is typically required before establishing or modifying an SNT — a judge must review and approve the proposed trust terms before it takes effect.
Limitations on Disbursements
The trustee has broad discretion to make distributions for almost any purpose to the extent such needs are not being provided for by Medicaid or SSI — including supplemental medical care, personal care attendants, transportation, travel, education, entertainment, technology, and retrofitting of a home or vehicle.
Two important distinctions regarding government benefit impacts:
Food: As of September 30, 2024, food is no longer counted as In-Kind Support and Maintenance (ISM) by Social Security. A trustee can now pay for groceries, restaurant meals, and food delivery without reducing the beneficiary’s SSI payment. The trust should pay vendors directly rather than providing cash to the beneficiary.
Housing: If the trust pays for shelter-related expenses — rent, mortgage payments, real estate taxes, utilities, or condo fees — the SSI benefit can be reduced by up to approximately $351/month in 2026 (the federal ISM cap). In Indiana, where there is no state SSI supplement, this reduction is felt especially acutely.
Note: Indiana does not provide a state SSI supplement. The federal SSI benefit ($967/month for an individual in 2026) is the full amount a beneficiary receives. Losing any portion of that benefit to an ISM reduction has a greater proportional impact in Indiana than in states that supplement the federal payment.
Ancillary Issues
Medicaid Payback
First-party SNTs require that upon the beneficiary’s death, Indiana Medicaid is reimbursed for benefits paid during the beneficiary’s lifetime — from the trust’s establishment through death — before any remaining funds pass to heirs. Third-party trusts carry no such requirement, and the grantor controls who receives any remainder.
Indiana’s INvestABLE Account (ABLE Program)
Indiana’s INvestABLE savings accounts offer significant advantages as a complement to SNT planning. Key features as of 2026 include:
- A beneficiary can save up to $100,000 in an INvestABLE account without jeopardizing SSI eligibility.
- Contributions are eligible for a 20% Indiana state tax credit, up to $500 per year per contributor.
- The ABLE Age Adjustment Act, taking effect in 2026, raises the disability onset age requirement from 26 to 46 — dramatically expanding eligibility for INvestABLE accounts.
- Unlike first-party SNTs, INvestABLE accounts do not require Medicaid payback at the account holder’s death, making them a valuable complement to trust planning when the beneficiary qualifies.
It is often advantageous to use INvestABLE accounts alongside an SNT, together with other complementary planning strategies such as the purchase of exempt assets, Medicaid-compliant annuities, and gifting strategies that account for the five-year Medicaid lookback period.
Trust Accounting Rights
Under Indiana Code § 30-4-5-12, family members and interested parties have the right to request a full accounting of how trust assets are being managed and distributed. This transparency obligation reinforces the importance of meticulous recordkeeping and professional administration.
Administration and Oversight
One of the most consequential — and often underappreciated — decisions in SNT planning is who will manage the trust and how administrative responsibilities will be divided. Many families default to naming an individual or single entity as the sole trustee. While well-intentioned, this approach carries significant risks that can be avoided by separating the trustee and administrative roles and placing them with qualified professionals.
The Complexity of the Role Demands Expertise
The job of SNT trustee is far more demanding than most people realize. Basic fiduciary requirements include maintaining detailed records, never co-mingling trust assets with the trustee’s personal assets, investing trust assets prudently, and filing all required income tax and distribution reports on time. On top of these baseline duties, an SNT trustee must navigate a web of ever-changing public benefits rules. Government programs such as SSI, Medicaid, and HUD Housing have detailed requirements regarding SNT distributions — a wrong move can disqualify the beneficiary for benefits, result in overpayments, or expose the trustee to personal legal liability.
SNT trustees and administrators have a fiduciary duty to act in the best interests of the beneficiary at all times. Making decisions inconsistent with the welfare of the individual with a disability breaches that duty, making the trustee personally liable. A professional trustee understands this standard and operates within it daily — a family member stepping into the role for the first time does not.
Professionals Bring Specialized Knowledge That Protects Benefits
With the professionals at Medical Fund Advisors serving as administrator, counsel and families can rely on deep experience in public benefits programs, medical claims, financial management, and compliance. This expertise is what stands between the beneficiary and a costly, potentially irreversible loss of Medicaid or SSI eligibility. Saving hundreds of dollars in administrative fees may seem attractive; however, losing governmental benefits because the trust was administered incorrectly can be a far more costly matter — particularly in Indiana, where no state SSI supplement exists to cushion the impact.
Separating Trustee and Administrative Roles Adds a Layer of Oversight
A professional trustee handles fiduciary decision-making — investment of assets, approval of distributions, and legal compliance. Medical Fund Advisors acts as a separate professional administrator, handling the day-to-day operational duties: recordkeeping, bill negotiation and payment, claims processing, and correspondence with government agencies. Separating these roles creates a system of checks and balances: neither party operates in isolation, reducing the risk of error or self-dealing and ensuring that Indiana’s trust accounting requirements are satisfied at all times.
Institutional Continuity Matters Over a Lifetime
A beneficiary may depend on their SNT for decades. Family member trustees age, move, become ill, predecease the beneficiary, or simply burn out. If an older relative is being considered as trustee, a younger “successor” trustee should also be named so that the trust can be administered without interruption. A professional institution — a bank trust department, nonprofit, or specialty firm — has built-in continuity that no single family member can guarantee.
The Recommended Structure
The best practice for most Indiana SNTs is a layered approach: a professional trustee makes fiduciary decisions; Medical Fund Advisors serves as a separate professional administrator handling day-to-day operations, claims, and recordkeeping; and a trusted family member serves as trust protector — empowered to review accounts and remove or replace the professional trustee if needed. This removal power may not be granted to the beneficiary of an SNT. This structure keeps family members meaningfully involved while placing the legal and technical burdens where they belong — with professionals trained to carry them.
Indiana Idiosyncrasies
Trust Decanting Power (IC § 30-4-10-43): Indiana’s 2022 decanting law gives trustees with discretionary authority the power to transfer assets from an existing trust into a new SNT to preserve benefit eligibility — often without court involvement. This is a powerful planning and remediation tool unique to states that have adopted the Uniform Trust Decanting Act.
No State SSI Supplement: Indiana does not supplement the federal SSI benefit. This makes protecting SSI eligibility — and avoiding ISM reductions from housing payments — especially important for Indiana beneficiaries.
Supported Decision-Making Requirement (IC § 29-3-14): Since 2019, Indiana courts must explore less-restrictive alternatives, including supported decision-making agreements, before appointing a guardian. SNT planning may often be accomplished without guardianship.
Court Approval in Guardianship Contexts: When an SNT is created within guardianship proceedings, a judge must review and approve the proposed trust before it takes effect. A guardian cannot unilaterally establish or modify an SNT without court sign-off.
Mandatory Trust Accounting (IC § 30-4-5-12): Indiana law gives beneficiaries and interested parties the right to demand a full accounting of trust assets and distributions. Professional administration through Medical Fund Advisors ensures this obligation is met with accurate, timely, and defensible records.
2025 Medicaid ABA Therapy Caps: Indiana Medicaid implemented caps on Applied Behavior Analysis (ABA) therapy in 2025 — tiered by diagnosis level, generally 30–38 hours per week with a 36-month lifetime limit. SNT funds may supplement ABA therapy above Medicaid’s covered amounts, making proactive trust administration critical for affected families.
Regular Review Recommended: Indiana’s Medicaid waiver system continues to evolve. A trust drafted several years ago may already be working against a family’s interests. Regular review with a qualified Indiana special needs attorney — coordinated with Medical Fund Advisors’ administration team — is strongly recommended.
Disclaimer: This summary is for general informational purposes only and does not constitute legal advice. Indiana special needs law is complex and changes frequently. Families should consult a qualified Indiana attorney specializing in special needs and disability planning before establishing or modifying any trust.
Prepared by Medical Fund Advisors | [email protected] | www.trustmfa.com