A Comprehensive Summary
Updated April 2026
A Special Needs Trust (SNT) is a legally established fiduciary arrangement designed to hold and manage assets on behalf of a person with a disability without disqualifying that individual from means-tested public benefit programs such as Medicaid and Supplemental Security Income (SSI). In Maryland, SNTs are governed by a combination of federal law, Maryland statutory provisions, and applicable case law, and serve as an indispensable planning tool for disabled individuals and their families.
The central purpose of an SNT is to supplement—not supplant—government benefits. Because programs like Medicaid and SSI impose strict asset and income limits, direct inheritance or compensation paid to a person with a disability can result in immediate disqualification from critical support programs. An SNT provides a legally recognized vehicle through which assets may be held and used for the beneficiary’s benefit without being counted as available resources.
Types of Special Needs Trusts Under Maryland Law
First-Party (Self-Settled) Special Needs Trusts
A first-party SNT, also known as a “d4A trust,” is funded with assets belonging to the beneficiary—commonly proceeds from a personal injury settlement, inheritance, or retroactive benefit payments. Under 42 U.S.C. § 1396p(d)(4)(A), such trusts must satisfy the following requirements:
- • The beneficiary must be under 65 years of age at the time the trust is established.
- • The trust must be established by a parent, grandparent, legal guardian, or a court.
- • The trust must be for the sole benefit of the disabled individual.
- • Upon the beneficiary’s death, the trust must contain a Medicaid payback provision requiring reimbursement to the state for benefits paid during the beneficiary’s lifetime.
Maryland follows federal Medicaid law in implementing these requirements. The Maryland Department of Health (MDH) reviews first-party SNTs to confirm compliance before extending Medicaid eligibility protection.
Third-Party Special Needs Trusts
A third-party SNT is funded with assets belonging to someone other than the beneficiary, such as a parent, grandparent, or other family member. These trusts do not require a Medicaid payback provision upon the beneficiary’s death, and any remaining assets may be distributed to other named beneficiaries. Third-party SNTs are frequently established through estate planning instruments, including wills and revocable living trusts, and may be created at any time during the beneficiary’s life.
Pooled Trusts
Pooled SNTs, authorized under 42 U.S.C. § 1396p(d)(4)(C), are established and managed by nonprofit organizations that pool the assets of multiple beneficiaries for investment purposes while maintaining separate accounts for each. In Maryland, pooled trusts offer a practical option for individuals with smaller asset amounts for whom the cost of a standalone trust would be prohibitive. Unlike first-party trusts, pooled trusts may be established by the beneficiary directly and are available to individuals of any age.
Maryland Statutory and Regulatory Framework
Maryland’s trust law is primarily codified in the Maryland Trust Act, Estates and Trusts Article §§ 14.5-101 et seq., which governs the creation, administration, and modification of trusts, including SNTs. Maryland has adopted significant portions of the Uniform Trust Code (UTC), and courts apply UTC principles to resolve questions of trustee duty, trust modification, and judicial oversight.
Practitioners must also be attentive to Maryland Medicaid regulations found in Code of Maryland Regulations (COMAR) Title 10, Subtitle 09, which govern Medicaid eligibility and treatment of trust assets. In evaluating an SNT, Maryland Medicaid analysts assess whether the trust is properly structured, whether the trustee retains discretion over distributions, and whether any distributions made could be considered income or resources attributable to the beneficiary.
Under Maryland law, a trustee owes the beneficiary duties of loyalty, prudence, impartiality, and full disclosure. Failure to comply with these duties can expose the trustee to personal liability and jeopardize the trust’s public benefits protection.
Administration and Distribution Standards
Proper SNT administration requires that the trustee make discretionary distributions only for goods and services that genuinely supplement—rather than duplicate—available public benefits. Distributions for food and shelter may reduce SSI benefits under the in-kind support and maintenance (ISM) rules and should be approached with caution. Trustees must maintain meticulous records of all distributions, regularly review the beneficiary’s benefit eligibility status, and stay current with evolving federal and state program rules.
The trustee must also be mindful of prohibited accumulations or patterns of distribution that could be interpreted by benefit agencies as evidence that the trust is an available resource. Regular coordination with the beneficiary’s benefits coordinator or legal counsel is strongly advisable.
Recommended Guidance: Separating the Roles of Trustee and Claims Administrator
One of the most consequential structural decisions in designing and administering a Special Needs Trust is whether to vest all responsibilities in a single trustee or to separate the fiduciary role of trustee from the operational role of claims administrator. This summary strongly endorses the division of these two roles as a matter of best practice, and sets forth the rationale and practical framework for doing so.
Defining the Two Roles
The Trustee holds legal title to the trust assets, exercises fiduciary oversight, makes investment decisions, and bears ultimate responsibility for compliance with the trust instrument and applicable law. The trustee may be an individual (such as a family member) or a corporate fiduciary such as a bank or trust company.
The Claims Administrator (sometimes called a Benefits Coordinator or Trust Advisor) manages the day-to-day operational functions of the trust: reviewing and processing distribution requests, verifying that proposed expenditures are permissible under public benefit rules, coordinating with government agencies, and maintaining records. This role requires specialized knowledge of Medicaid, SSI, and other benefit programs rather than financial or investment expertise.
The Case for Separation
The consolidation of fiduciary and administrative functions in a single trustee creates significant risks. A family member serving as sole trustee may be highly attuned to the beneficiary’s needs but lack the technical expertise required to navigate benefit program rules, resulting in inadvertent distributions that compromise eligibility. Conversely, a corporate trustee with investment sophistication may be ill-equipped to handle the rapid, individualized decision-making that benefit administration demands.
Separating these roles offers the following concrete advantages:
- • Specialization: The claims administrator can develop deep, current expertise in SSI, Medicaid, and related benefit programs, reducing the risk of impermissible distributions.
- • Responsiveness: Administrative decisions—such as approval of a distribution request—can be made more quickly by a dedicated administrator without requiring full trustee deliberation.
- • Accountability and Oversight: Separation creates a natural system of checks, with the trustee reviewing administrator recommendations and retaining ultimate authority over trust assets.
- • Family Involvement: Where a family member serves as trustee, separation allows them to maintain meaningful oversight and relational connection to the beneficiary without bearing administrative burdens beyond their expertise.
- • Conflict Reduction: A neutral claims administrator can serve as a buffer in emotionally complex family situations, making benefit-related decisions on objective grounds.
Structural Recommendations
When drafting an SNT intended to utilize a split-role structure, the trust instrument should expressly define the authority and limitations of both the trustee and the claims administrator, establish a clear process for communication and dispute resolution between the two roles, specify which decisions require joint approval and which fall within the exclusive domain of each role, and provide a mechanism for replacing either party without disrupting trust operations.
Ideally, the claims administrator should be a qualified professional—such as Medical Fund Advisors, who have over 100 years of combined claims, medical, financial and legal expertise ensures that medical costs are paid appropriately and expediently.
Coordination with Maryland Medicaid
Practitioners should note that Maryland Medicaid will scrutinize the trust’s distribution history and decision-making structure. A well-documented split-role framework, with clear records demonstrating that distributions were reviewed against benefit eligibility requirements before approval, can serve as significant evidence of good-faith compliance. Trustees and claims administrators should maintain joint records and conduct periodic joint reviews of the beneficiary’s benefit status.
Conclusion
Special Needs Trusts remain one of the most powerful planning tools available to disabled individuals and their families in Maryland. When properly structured and administered, an SNT can preserve access to essential public benefits while significantly enhancing the beneficiary’s quality of life. Practitioners are encouraged to approach SNT drafting with careful attention to both federal program requirements and Maryland-specific rules, and to give serious consideration to separating the roles of trustee and claims administrator as a structural safeguard that promotes compliance, responsiveness, and long-term trust integrity.
This summary is intended for informational purposes only and does not constitute legal advice. Individuals seeking guidance on the establishment or administration of a Special Needs Trust in Maryland should consult with a qualified attorney with expertise in disability and elder law.
This document is a legal summary prepared for educational purposes. It does not establish an attorney-client relationship.