Dec42025
Estate Planning Q&A Series

Should we use a first-party special needs trust or an ABLE account? – North Carolina

Short Answer

Under North Carolina law, a first-party special needs trust (often established under Chapter 36D) and a North Carolina ABLE account are both tools that can help a disabled adult keep means-tested benefits while setting aside funds. They are not interchangeable. A first-party special needs trust usually fits larger inheritances or lawsuit recoveries and offers broader spending flexibility but must follow strict trust rules and Medicaid payback. An ABLE account is simpler, works best for modest amounts within annual and lifetime limits, and is treated as exempt for State means-tested benefits under N.C. Gen. Stat. § 147-86.73(d), but also carries Medicaid payback under federal and State law.

Understanding the Problem

The question is whether, under North Carolina estate planning and public benefits rules, a disabled adult child who receives SNAP, Medicaid, and SSDI should rely on a first-party special needs trust, an ABLE account, or a disclaimer strategy when an inheritance is coming. The concern is how to receive (or redirect) an inheritance without disrupting means-tested benefits like Medicaid and SNAP. The focus is on choosing the right legal vehicle, not on changing the amount of the inheritance or altering the public benefits themselves.

Apply the Law

Under North Carolina law, the core tools in this situation are: (1) a properly structured first-party special needs trust that complies with Chapter 36D and federal Medicaid rules, (2) a North Carolina (or other state) ABLE account governed by Article 6F of Chapter 147, and (3) a qualified disclaimer of the inheritance under Chapter 31B. Each tool has specific requirements, limits, and consequences for Medicaid and other means-tested programs.

Key Requirements

  • First-party special needs trust: The trust must be funded with the disabled person’s own assets, established for a disabled beneficiary under the age and disability definitions in federal Medicaid law, drafted so the beneficiary cannot demand distributions, and administered so that trust assets are not counted as a resource for public benefits under N.C. Gen. Stat. § 36D-9, with Medicaid payback at death as required by federal law.
  • ABLE account: The beneficiary must meet the federal ABLE disability definition and have an onset of disability before the applicable age threshold; only one ABLE account per beneficiary is allowed; annual contribution limits and federal aggregate caps apply; and distributions must be for “qualified disability expenses” to preserve favorable treatment under N.C. Gen. Stat. § 147-86.70 and § 147-86.71.
  • Disclaimer of inheritance: A disclaimer (renunciation) must be in writing, signed and filed within the time limits of N.C. Gen. Stat. § 31B-2, and must comply with federal timing rules if tax qualification is desired; once effective, the heir is treated as if the interest never passed, and the property follows the will or intestacy default, which may or may not protect public benefits.

What the Statutes Say

Analysis

Apply the Rule to the Facts: In the facts described, the adult child already receives Medicaid and SNAP (both means-tested) and SSDI (not means-tested). A direct inheritance in the child’s name could create countable resources and risk Medicaid and SNAP. A properly drafted first-party special needs trust funded with the inheritance can preserve eligibility because the interest in the trust is not treated as an available asset if the trust meets Chapter 36D and federal Medicaid standards. An ABLE account can also shield funds up to federal limits and is expressly ignored for North Carolina means-tested programs, but contribution caps make it better suited to modest inheritances or as a companion tool to a trust. A pure disclaimer that sends the inheritance back to the parents might avoid an immediate resource issue for the child but shifts control and exposes the funds to the parents’ creditors, taxes, and future incapacity or death, and it leaves the disabled child with no legal right to those funds.

Process & Timing

  1. Who files: Typically, a parent, guardian, or other authorized person works with an attorney to draft and establish the first-party special needs trust and any needed court approvals. Where: Often through the Superior Court clerk’s office in the North Carolina county where the beneficiary resides, if court approval is required, and with the Department of Health and Human Services (DHHS) notified as needed for Medicaid compliance. What: A trust agreement tailored to Chapter 36D and federal 42 U.S.C. § 1396p(d)(4)(A) standards and any required petitions. When: Ideally before the inheritance is distributed so the inherited share can be paid directly into the trust.
  2. To use an ABLE account, the disabled beneficiary (or an authorized representative) opens an account through the State Treasurer’s ABLE Program or another qualified state ABLE program, using the official application process referenced in § 147-86.71. This can usually be done online, and then inheritance funds (up to the applicable annual/aggregate limits) may be contributed.
  3. If the family elects a disclaimer, the child (if legally competent) signs a written renunciation of the inheritance. The instrument is then filed as an estate matter with the Clerk of Superior Court in a county with jurisdiction over the decedent’s estate under § 31B-2(c), and, if it involves real property, the instrument is also registered in the land records. This generally must be done within the applicable federal nine-month window if tax-qualified treatment is desired.

Exceptions & Pitfalls

  • A trust that does not comply with Chapter 36D or federal Medicaid rules can be treated as an available resource, which may terminate Medicaid; DHHS can impose sanctions if the trust is drafted or administered improperly.
  • ABLE accounts have strict eligibility and contribution limits; excess contributions or non-qualified distributions can affect federal benefits and have tax and Medicaid consequences, so coordination with a tax professional is important.
  • A disclaimer sends the inheritance along the default path; if the will or intestacy law sends assets to parents, those assets may later be counted for the parents’ own Medicaid or creditor issues, and the disabled child loses any legal claim to those funds.

Conclusion

For a North Carolina resident on Medicaid and SNAP, a first-party special needs trust is usually the primary tool for protecting a significant inheritance while preserving means-tested benefits, because a compliant Chapter 36D trust keeps the beneficiary’s interest from being counted as an asset. An ABLE account works well in tandem for day-to-day qualified disability expenses within contribution limits and is specifically excluded from State means-tested resource calculations. Because a disclaimer permanently gives up the inheritance and shifts risk to the next taker, the most protective next step is to consult with a North Carolina estate planning and special needs planning attorney to establish any needed trust and ABLE structure before the inheritance is distributed.

Talk to a Estate Planning Attorney

If an adult child with disabilities is expecting an inheritance and the family wants to preserve North Carolina Medicaid and other benefits, our firm has experienced attorneys who can help explain how first-party special needs trusts, ABLE accounts, and disclaimers work together. 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 any specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If there is a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Estate Planning Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.