A settlement check arrives. An inheritance clears probate. A retroactive Social Security back-pay award lands in an account. Any of these can push a family member with a disability over Maryland’s asset limit in a matter of days, wiping out Medicaid or Supplemental Security Income (SSI) benefits that took years to secure. The margin is smaller than most families expect: Maryland’s Medical Assistance program for the Aged, Blind, and Disabled carries a $2,500 asset limit for an individual as of February 2026, and the federal SSI threshold is $2,000.
That moment (when money arrives and the clock starts) is exactly when the structure of a special needs trust matters most. Getting it wrong doesn’t just mean legal fees; it can mean a gap in health coverage or a suspension of monthly income a family depends on. With over 90 years serving Maryland families, Hartman - Attorneys at Law has worked through this decision with many clients, and the answer is almost never the same twice.
How Special Needs Trusts Protect Benefits in Maryland
A properly drafted special needs trust holds assets for a person with a disability without counting those assets toward Medicaid or SSI eligibility. The trust is structured so the beneficiary never has direct access or control over the funds. That’s how the asset limits are avoided. Maryland reinforces this protection at the statutory level: Estates and Trusts Section 14.5-1002 of the Maryland Trust Act directs state agencies not to impose rules more restrictive than federal law on special needs and pooled asset trusts.
Maryland is also a 1634 state, meaning SSI recipients are automatically enrolled in Medicaid without a separate state application. That linkage makes benefit preservation doubly important. Losing SSI eligibility can simultaneously end Medicaid coverage, even if the underlying disability hasn’t changed. The type of trust a family chooses affects not just setup, but what happens to remaining funds after the beneficiary dies.
Individual Special Needs Trusts: Full Control, More Process
An individual special needs trust is a standalone legal document drafted for one beneficiary. There are two foundational types based on whose money funds it.
First-Party Trusts
A first-party special needs trust is funded with the beneficiary’s own assets: a personal injury settlement or an inheritance received directly. Because federal and Maryland law treat these funds as belonging to the beneficiary, a first-party trust must include a Medicaid payback provision, meaning Maryland’s Medicaid program is reimbursed for benefits paid over the beneficiary’s lifetime before any remaining balance passes to family. Maryland also requires that a first-party individual trust be submitted to and approved in writing by the Attorney General’s Office before it can be established. That review commonly takes weeks to months, which matters when funds are sitting in a personal account accumulating toward the asset limit.
Third-Party Trusts
A third-party special needs trust is funded with assets belonging to someone other than the beneficiary: typically a parent’s estate plan, a grandparent’s gift, or a life insurance policy. These trusts carry no Medicaid payback provision. The family names the trustee, controls the trust language, and designates any remainder beneficiary to receive what’s left after the beneficiary dies. That flexibility makes third-party trusts the preferred vehicle for estate planning when the family is the source of funds.
Both types give the family significant control over who serves as trustee and how distributions are made. A trusted family member can serve, or a professional corporate trustee can be appointed. That flexibility comes with responsibility: the trustee bears ongoing fiduciary duties, and the trust itself requires annual tax preparation and, depending on complexity, periodic legal review.
Pooled Special Needs Trusts: Professional Management, Fewer Barriers
A pooled asset special needs trust is administered by a nonprofit organization that combines the investment assets of many participants while keeping each person’s funds in a separate sub-account. The beneficiary’s money is tracked individually for distribution purposes but invested collectively, which reduces costs and provides professional management for families who don’t have a suitable trustee candidate.
One of the most practical advantages of pooled trusts is speed. The nonprofit’s master trust document is already reviewed and accepted by state programs, so opening a sub-account requires enrollment paperwork rather than a new trust document. Funds can typically be protected within days of a settlement or inheritance rather than waiting on an Attorney General review. Maryland law also extends a protection to pooled trusts that doesn’t apply to individual first-party trusts: a person of any age can establish or fund a pooled account without triggering a transfer penalty. Individual first-party trusts funded after the beneficiary reaches age 65 can create a Medicaid penalty period, making the pooled option the only practical path for some older beneficiaries who receive a late settlement or inheritance.
Comparing Cost & Setup Timeline
Neither structure is universally cheaper. The right comparison depends on account size, how long the trust will be in place, and whether a family member can serve as trustee.
- Individual trust setup: Attorney drafting fees plus, if a professional trustee is used, an annual trustee fee that typically runs from a fraction of a percent to around one percent of assets annually, plus annual tax preparation costs.
- Pooled trust enrollment: A one-time enrollment fee published by the nonprofit, combined with an annual fee that scales with account size. Because the master document is pre-approved, no separate Attorney General review is required for a first-party sub-account.
- Break-even dynamics: For smaller accounts, pooled trust fees can represent a meaningful percentage of assets. For larger accounts held over many years, the flat-fee-plus-percentage model may be less expensive than ongoing professional trustee and tax preparation costs for a stand-alone trust.
- Timeline costs: When a beneficiary’s assets sit unprotected during an Attorney General review for a first-party individual trust, any interest or growth during that period counts toward the asset limit, a cost that rarely appears in simple fee comparisons.
What Happens to Remaining Funds After the Beneficiary Dies
For any first-party trust (individual or pooled) Medicaid payback applies first. Maryland’s Medical Assistance program is reimbursed for benefits paid over the beneficiary’s lifetime before any remaining balance can pass to family members.
Third-party trusts carry no payback requirement. The family retains full control over remainder beneficiaries in a third-party individual trust. With a pooled third-party sub-account, the picture is more nuanced: some pooled trusts include a remainder retention clause that directs a portion of a deceased beneficiary’s account balance to the nonprofit’s charitable mission rather than passing the full remainder to the family. This isn’t universal, and the specific terms vary by nonprofit, but it’s a provision families should confirm before enrolling.
Choosing the Right Structure for Your Family
The decision turns on four practical questions: How large is the fund? Is a qualified trustee available? How quickly must the assets be protected? And what should happen to remaining funds when the beneficiary dies?
Families with a large settlement going to an adult beneficiary who has no suitable family trustee and no estate-planning goal for the remainder often find a pooled sub-account cleaner and faster to establish. Families building a trust as part of a broader estate plan (where the source of funds is a parent’s estate and the family wants full control over a named trustee and remainder beneficiaries) generally benefit more from an individually drafted third-party trust.
The structures aren’t mutually exclusive. Some families route a larger inheritance into a stand-alone third-party trust while directing a smaller settlement into a pooled account, using each tool where it fits best. And because a first-party trust of any type still triggers Medicaid payback, comparing the pooled trust’s remainder policy against what an individual trust’s remainder beneficiaries would receive is a real part of the decision, not an afterthought.
Maryland’s statutory framework, rooted in Estates and Trusts Section 14.5-1002, gives families more flexibility than many states allow. But using that flexibility well requires matching the structure to your family’s specific assets, timeline, and long-term goals. There’s no version of this decision that works equally well for everyone. Hartman - Attorneys at Law offers complimentary consultations to review those specifics; reach us at (443) 335-9661.