What expenses can a supplemental needs trust pay for without affecting eligibility for needs‑based benefits? – North Carolina

Short Answer

Under North Carolina law, a properly structured supplemental (special) needs trust can pay for many “extra” goods and services that improve a disabled beneficiary’s quality of life without counting as that person’s own assets for Medicaid or other needs-based benefits. The key is that the trust must meet North Carolina’s 36D Trust requirements and federal rules, and distributions must be for the sole benefit of the beneficiary and structured so they do not provide basic food and shelter in a way that conflicts with SSI or Medicaid policies. The trust document and trustee’s actual administration both matter for keeping benefits intact.

Understanding the Problem

The core question is: under North Carolina estate planning and public-benefits rules, what kinds of expenses can a supplemental needs trust safely cover for a disabled beneficiary who receives needs-based assistance such as Medicaid or Supplemental Security Income? Families often want a trust that can pay for quality-of-life items—like therapies, travel, or personal care—without jeopardizing those benefits. The concern is which payments are treated as the beneficiary’s own income or resources and which are treated as permitted “supplemental” support under North Carolina’s statutes and Medicaid/SSI policy.

Apply the Law

North Carolina implements special needs and pooled trust rules through Chapter 36D of the General Statutes and through Medicaid eligibility rules adopted by the Department of Health and Human Services. These laws build on federal Medicaid trust rules and SSI policy. A trust that meets the Chapter 36D definition and is administered for the sole benefit of the disabled beneficiary is generally not treated as that person’s countable asset for means-tested programs, but improper terms or distributions can cause penalties or loss of eligibility.

Key Requirements

Valid 36D or supplemental needs trust structure: The trust must comply with North Carolina’s pooled or third-party trust framework and relevant federal law so the beneficiary’s interest is not treated as an asset for eligibility purposes.
Sole benefit and supplemental purpose: Distributions must be for the sole benefit of the disabled beneficiary and generally should supplement, not replace, what government benefits already cover.
Compliance in administration: The trustee must follow Medicaid and SSI rules in practice, including how payments are made and to whom, so the trust is not treated as an available resource or disqualifying transfer.

What the Statutes Say

N.C. Gen. Stat. § 36D-1 (Community Third Party and Pooled Trusts) – States the public purpose of 36D trusts and ties them to federal Medicaid special needs trust rules.
N.C. Gen. Stat. § 36D-3 (Scope) – Applies Chapter 36D to pooled and community third-party trusts and requires that pooled trusts benefit only the disabled beneficiary.
N.C. Gen. Stat. § 36D-7 (Special requests on behalf of beneficiary) – Allows trusts to fulfill special requests and limits Medicaid pooled trust distributions to those for the sole benefit of the beneficiary.
N.C. Gen. Stat. § 36D-9 (Beneficiary’s interest not an asset) – Provides that a qualifying 36D trust is not treated as an asset for publicly operated benefit programs, subject to compliance with Chapter 36D and agency rules.
N.C. Gen. Stat. § 36D-12 (Administrative rules) – Authorizes DHHS to adopt detailed Medicaid eligibility rules, which can be more restrictive than the statute itself.

Analysis

Apply the Rule to the Facts: In the scenario described, the client is at the planning stage and wants to know what a future supplemental needs trust may pay for. Under North Carolina’s framework, a properly drafted and administered trust can typically pay for many non-basic items—such as personal care, education, recreation, and certain housing-related extras—without making the corpus a countable resource, as long as distributions are for the beneficiary’s sole benefit and follow Medicaid/SSI guidance. Specific choices, like paying rent directly versus reimbursing for items already purchased, can change how SSI or Medicaid treats a distribution, so the trust language and administration need to be aligned from the start.

Process & Timing

Who files: Typically the person creating the trust (such as a parent, grandparent, or the disabled individual, depending on trust type). Where: The trust is drafted and executed under North Carolina law; court approval may be required if funded with lawsuit proceeds or if ordered in a guardianship or settlement. What: A written supplemental needs or pooled trust agreement that incorporates Chapter 36D and federal Medicaid/SSI requirements. When: Ideally before transferring any assets to the trust and before the disabled individual receives funds directly.
After execution, assets are retitled or paid into the trust (for example, lifetime gifts, inheritances, or settlement proceeds). If the trust is a pooled Medicaid trust, enrollment occurs with the administering nonprofit, and the subaccount is opened once the joinder agreement and contribution are accepted.
The trustee then administers the trust on an ongoing basis: reviewing benefits rules, making distributions for permitted supplemental purposes, keeping detailed records, and coordinating with benefits agencies when necessary. The trust continues until it terminates under its terms, at which point any required Medicaid payback and final accounting occur.

Exceptions & Pitfalls

Expenses that provide food or basic shelter can be treated as in-kind support under SSI rules and may reduce monthly SSI, even if they do not destroy Medicaid eligibility; careful planning often limits or structures these payments.
Distributions that benefit someone other than the disabled beneficiary (for example, general family travel not clearly tied to the beneficiary’s needs) can violate the “sole benefit” rule and cause the trust to be treated as an available resource.
Poor drafting or deviation from Chapter 36D and DHHS rules can cause the state to treat the trust as non-qualifying, leading to loss of benefits or sanctions against the trustee.
Medicaid pooled trusts usually must repay the State up to the amount of medical assistance paid, from any remaining subaccount on death, and cannot redirect surplus funds contrary to the statute.

Conclusion

Under North Carolina law, a valid supplemental or pooled special needs trust can pay for a wide range of supplemental goods and services—beyond basic food and shelter—without counting as the beneficiary’s own asset for needs-based programs, so long as the trust is drafted to meet Chapter 36D and federal requirements and is administered for the beneficiary’s sole benefit. The most important next step is to have a North Carolina estate planning attorney design a trust that tracks current Medicaid and SSI rules before any significant assets are transferred.

Talk to a Estate Planning Attorney

If you’re dealing with questions about what a North Carolina supplemental needs trust can safely pay for while preserving Medicaid or SSI, our firm has experienced attorneys who can help you understand your options and timelines. Call us today at 919-341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.