Special Needs Trust in Washington State: Types, Setup, and Rules

A special needs trust in Washington State lets a person with a disability benefit from an inheritance, settlement, or gift without losing Supplemental Security Income or Apple Health coverage. The trust holds the money, a trustee spends it on the beneficiary’s behalf, and Washington law keeps those assets out of the eligibility calculation.¹

Why the Resource Limits Force the Issue

SSI caps countable resources at $2,000 for an individual and $3,000 for a married couple in 2026.² Apple Health eligibility for people who also receive SSI follows the same threshold. A personal injury settlement, a back payment of Social Security benefits, or a well-intentioned gift from a relative can push someone past the limit overnight. Once countable resources exceed the cap, the monthly SSI payment stops and Apple Health coverage lapses until the person spends down. A special needs trust prevents that by holding the assets in a form the state cannot count.

The Three Types of Special Needs Trusts

Which trust you use depends on whose money is going in and what should happen to any balance left when the beneficiary dies.

First-Party Trust

A first-party trust, sometimes called a d4A trust, holds money that belongs to the beneficiary personally. Typical funding sources are personal injury settlements, workers’ compensation awards, and retroactive Social Security payments. Federal law requires three things: the beneficiary must be under 65 and disabled, the trust must be created by the beneficiary, a parent, grandparent, legal guardian, or a court, and the document must contain a Medicaid payback clause.³ When the beneficiary dies, whatever is left first reimburses the Washington Health Care Authority for every dollar Apple Health spent on their care. Only after that payback can anything pass to other named beneficiaries.

Third-Party Trust

When the money comes from someone else, such as a parent leaving an inheritance or grandparents funding a trust while they are alive, the trust is third-party. No Medicaid payback applies. Because the funds never belonged to the person with the disability, the state has no claim on them, and any remainder passes to whichever family members, heirs, or charities the document names. Washington families often build these trusts into their estate plans so they can leave money to a loved one without disturbing Apple Health.

Pooled Trust

Pooled trusts are run by nonprofit organizations that combine investments across many beneficiaries while keeping a separate subaccount for each person. They accept both first-party and third-party money. A pooled trust is often the right fit when no family member is willing or equipped to serve as trustee, or when the balance is too small to justify the administrative cost of a standalone trust. Joining is done through a joinder agreement signed with the nonprofit.

ABLE Accounts as an Alternative or Companion

Washington runs its own ABLE Savings Plan, which can replace or work alongside a trust for smaller amounts.⁴ Starting January 1, 2026, ABLE eligibility expands to anyone whose qualifying disability began before age 46, up from the previous age-26 cutoff.⁵ Annual contributions are capped at $20,000, and the balance is excluded from SSI resource calculations up to $100,000.⁶ Above $100,000, the excess counts as a resource and can trigger SSI suspension, though Apple Health continues.

ABLE accounts are simpler than trusts. The beneficiary controls the account directly, there is no trustee, and no attorney is required to open one. The tradeoff is capacity: someone who receives a $300,000 settlement cannot park it in an ABLE account. For larger sums, a special needs trust is the only option, and many families use both. The trust holds the bulk of the assets, and the trustee moves smaller amounts into the ABLE account periodically to give the beneficiary spending independence.

Setting Up the Trust in Washington

Gather the Documentation

Before drafting begins, pull together legal names, current addresses, and Social Security numbers for the person creating the trust, the trustee, and the beneficiary. You also need proof of disability, usually an SSI or SSDI award letter or a written medical determination from the Social Security Administration. On the financial side, gather statements for every asset going in: bank records, settlement agreements, life insurance policies, or court orders. If you are joining a pooled trust rather than creating a standalone one, the nonprofit supplies a joinder agreement that serves as your enrollment contract.

Drafting and Signing

An attorney experienced in special needs planning drafts the document to satisfy both federal Medicaid rules and Washington’s trust statutes. For first-party trusts, the payback clause and sole-benefit language must be airtight, because the Health Care Authority and Social Security will review it. The trust is executed by signing in front of a notary. Attorney fees in Washington for drafting a special needs trust generally run $2,000 to $5,000, depending on complexity.

Get an EIN

Once the document is signed, the trustee applies to the IRS for an Employer Identification Number using Form SS-4, identifying the entity as a trust and selecting “created a trust” as the reason.⁷ The EIN functions like a Social Security number for the trust, and every bank or brokerage will require it before opening an account in the trust’s name.

Fund the Trust and Notify the State Within 30 Days

The trustee opens a dedicated account under the trust’s name and EIN, then transfers or retitles the assets into it. Money sitting in the beneficiary’s personal account remains a countable resource until it actually moves into the trust account.

Washington law then requires the trustee to notify the Department of Social and Health Services or the Health Care Authority in writing within 30 days of the date the trust is funded or the date the individual becomes a trust beneficiary, whichever comes later.⁸ Miss this deadline and Apple Health coverage can be disrupted. Send the notice by certified mail so you have a paper trail.

Choosing a Trustee

The trustee controls the money, and choosing the wrong one is the most common mistake families make. The trustee has a legal duty to act in the beneficiary’s best interest, understand both the trust terms and the benefits rules, and make spending decisions that do not jeopardize eligibility. That is a lot to ask of a relative who has never dealt with SSI.

Family members serve as trustees often, particularly for third-party trusts with moderate balances and uncomplicated family dynamics. A sibling can handle the role if they are organized, willing to keep records, and prepared to learn the rules. When the trust holds substantial assets, when family relationships are strained, or when the beneficiary has medically complex needs, a professional trustee or trust company is usually safer. Professional trustees typically charge an annual fee of roughly 1% to 3% of trust assets, though some charge hourly and pooled trust administrators build their fees into the trust agreement.

Co-trustees are another option, pairing a family member who knows the beneficiary’s daily life with a professional who handles the compliance side. The document should spell out how they make decisions together and what happens if they disagree.

What the Trust Can Pay For

The core rule: distributions cover supplemental needs that government benefits do not. SSI provides a monthly cash payment for basic living expenses (up to $994 for an individual in 2026), and Apple Health covers medical care.⁹ The trust fills in everything else.

Common permissible expenses include:

Medical and dental care not covered by Apple Health, such as dental implants, specialized therapy, or experimental treatment
Electronics, entertainment, and hobbies, including computers, streaming subscriptions, concert tickets, and art supplies
Education and training: tuition, tutoring, vocational programs, books
Transportation, including vehicle purchase or modification, ride-share, and bus passes
Travel and vacations, including airfare, hotel, and meals for the beneficiary (and a companion when travel assistance is needed)
Home furnishings, clothing, and personal items

None of these reduce SSI or Apple Health so long as the trustee pays the vendor directly rather than handing cash to the beneficiary.

Cash and Gift Cards Count as Income

Giving the beneficiary cash reduces SSI dollar-for-dollar after a $20 general income exclusion. A $200 cash distribution cuts that month’s SSI check by $180.¹⁰ Social Security treats transferable gift cards the same as cash, so a Visa gift card triggers the same reduction. The workaround is for the trustee to pay vendors and bills directly. One useful pattern: the beneficiary uses a credit card for everyday non-shelter purchases and the trustee pays the credit card bill from trust funds. Social Security treats the purchase as a loan and the payment as repayment, so no SSI reduction occurs.

Shelter Payments Trigger a Capped Reduction

If the trust pays rent, mortgage, utilities, or property taxes directly, Social Security counts that as in-kind support and maintenance. The SSI reduction is capped at roughly one-third of the federal benefit rate plus $20, which works out to about $351 per month in 2026.¹⁰ Paying rent from the trust is often still worthwhile, because the housing benefit exceeds the modest SSI cut.

A change effective September 30, 2024, removed food from the in-kind support and maintenance calculation.¹¹ Previously, paying for a beneficiary’s groceries or restaurant meals reduced SSI. It no longer does. Trustees can buy food freely, including meals during vacations.

Keep Receipts

Trustees should keep receipts for every purchase and document how each expense relates to the beneficiary’s supplemental needs. The Health Care Authority may request an accounting, and weak records create suspicion of misuse even when none occurred. A simple spreadsheet with date, vendor, amount, and purpose is usually enough.

Taxes

How a special needs trust is taxed depends on the type. First-party trusts are typically classified as grantor trusts for tax purposes, meaning all income is reported on the beneficiary’s personal return. Because most SSI recipients have very low income, the tax hit is often minimal.

Third-party trusts are generally complex trusts and must file their own return on IRS Form 1041 if there is any taxable income or gross income of $600 or more.¹² The 2026 trust brackets are compressed:

$0 to $3,300: 10%
$3,300 to $11,700: 24%
$11,700 to $16,000: 35%
Over $16,000: 37%

A trust hits the 37% top bracket at just $16,000 of taxable income, while an individual would not reach that rate until well over $600,000.¹³ That makes it useful for trustees to distribute income to the beneficiary when possible, because distributed income is taxed on the beneficiary’s return at a much lower rate. A third-party trust that qualifies as a Qualified Disability Trust may also claim a higher personal exemption. If the trust expects to owe $1,000 or more after withholding and credits, quarterly estimated payments are required using Form 1041-ES.

What Happens When the Trust Ends

A special needs trust usually terminates when the beneficiary dies, though some documents include other trigger events, like the trust running out of money. The wind-down depends on the type.

First-Party Trust

The trustee pays final expenses and the trust’s last tax return, then handles the Medicaid payback. The trustee contacts the Health Care Authority to get a statement of every Apple Health dollar spent on the beneficiary’s behalf. The trust must reimburse the state for that full amount before anything passes to another named beneficiary.³ If the payback consumes everything, nothing remains to distribute, which is common for first-party trusts funded with modest amounts.

Third-Party Trust

Because no payback applies, the trustee pays final expenses and taxes and distributes the remainder to the named beneficiaries. If a remainder beneficiary is a minor or has their own disability, the trust may direct those funds into a new trust rather than distributing them outright.

Pooled Trust

Many pooled trust agreements provide that funds left in a subaccount stay with the nonprofit to support its mission and cover administrative costs. The joinder agreement lays out the specific retention terms, so read them carefully before joining.

For any trust type, the trustee files a final Form 1041 covering the last tax year and closes the trust’s EIN with the IRS. If the trust was under court supervision, a final accounting and court approval come before distributions.

1
Washington State Legislature. Washington Code 11.107.060 – Effect of Supplemental Needs Trust
2
Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
3
Office of the Law Revision Counsel. 42 U.S. Code 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
4
Washington State ABLE Savings Program. Home – WA State ABLE Savings Program
5
Social Security Administration. Spotlight On Achieving A Better Life Experience (ABLE) Accounts
6
Social Security Administration. SI 01130.740 – Achieving a Better Life Experience (ABLE) Accounts
7
Internal Revenue Service. Instructions for Form SS-4
8
Washington State Legislature. WAC 182-513-1105 – Treatment of Trusts Established on or After July 26, 2009
9
Social Security Administration. SSI Federal Payment Amounts for 2026
10
Social Security Administration. Spotlight on Trusts
11
Federal Register. Omitting Food From In-Kind Support and Maintenance Calculations
12
Internal Revenue Service. Instructions for Form 1041 and Schedules A, B, G, J, and K-1
13
Internal Revenue Service. 2026 Form 1041-ES