Can I use a trust to safeguard my inheritance and how do I set one up? – North Carolina

Short Answer

Yes. In North Carolina, a properly drafted supplemental needs trust can protect an inheritance so it isn’t counted against means-tested benefits like SSI and Medicaid and is harder for most creditors to reach. If a parent can leave assets to a third-party supplemental needs trust, that’s best; if not, you can often establish a first-party (self-settled) special needs trust or join a pooled trust before receiving funds, then have your share paid into the trust.

Understanding the Problem

In North Carolina, can I protect an upcoming inheritance by using a trust so I keep SSI and Medicaid? You are a beneficiary under a will that divides a home and other assets among three people, and you receive SSI and Medicaid. You expect cash from the home sale and want to avoid losing benefits or exposing funds to creditors.

Apply the Law

North Carolina trust law allows several paths to protect an inheritance for a person with a disability. A third-party supplemental needs trust (funded with someone else’s money, such as a parent’s estate) can include spendthrift and discretionary provisions that restrict transfers and creditor reach. When assets will be received in your own name, a first-party special needs trust or a pooled trust can be used to hold those funds so SSI/Medicaid treat them as noncountable if federal program rules are met. Trusts are created under North Carolina’s Uniform Trust Code, and the Clerk of Superior Court has original jurisdiction over many trust proceedings. A practical trigger is timing: set up and fund the trust before you receive any distribution. A common deadline is the nine-month window if you consider a disclaimer of your inheritance for tax-qualified treatment; procedures and timeframes can change.

Key Requirements

• Pick the right trust type: Use a third-party supplemental needs trust if parents can update their plan; otherwise, use a first-party special needs trust or a pooled trust before you receive your share.
• Meet creation rules: The trust must show intent, have identifiable property to fund it, serve a lawful purpose, and name a beneficiary.
• Use protective terms: Include supplemental needs language, trustee discretion, and a spendthrift clause to limit transfers and creditor access to undistributed assets.
• Coordinate funding: Have the estate’s personal representative or closing attorney pay your inheritance directly to the trust. If considering a disclaimer, do it in writing before accepting any benefit and within nine months for tax-qualified treatment.
• Know when court involvement helps: If directing the estate to fund the trust, or asking the court to create/approve a trust, file a trust proceeding before the Clerk of Superior Court; respondents typically have 10 days to answer.

What the Statutes Say

• North Carolina Gen. Stat. § 36C-4-401 (Methods of creating trust) – Basic ways a trust can be established under North Carolina law.
• North Carolina Gen. Stat. § 36C-5-502 (Spendthrift provision) – Spendthrift terms restrict transfer and limit most creditor claims to undistributed assets.
• North Carolina Gen. Stat. § 36C-5-505 (Creditor’s claims against settlor) – Creditors can reach assets of a self-settled trust to the extent distributions could be made to the settlor.
• North Carolina Gen. Stat. § 31B-1 (Right to renounce or disclaim) – Allows written renunciation of an inheritance; timing and acceptance rules apply.

Analysis

Apply the Rule to the Facts: Because you receive SSI and Medicaid, a supplemental needs trust is the right tool. If your parents can still update their will, a third-party trust for your share avoids counting and can include strong spendthrift protections. If not, set up a first-party special needs trust (or join a pooled trust) before the estate pays you. Ask the personal representative to distribute your share directly to that trust. If you prefer to avoid any trust, you could disclaim your share, but that means you receive nothing and must do it in writing before accepting any benefit and within nine months for tax-qualified treatment.

Process & Timing

1. Who files: You (or your agent/guardian). Where: Draft the trust privately; if court direction is needed, file a trust proceeding with the Clerk of Superior Court in the North Carolina county where the estate is administered or where a beneficiary resides. What: Trust agreement (first-party special needs trust or joinder to a pooled trust). If court relief is sought, file a petition; respondents receive an Estate Summons for Trust Proceeding (AOC-E-150). When: Before the estate distributes funds; consider the nine-month window if using a disclaimer.
2. Coordinate with the personal representative to retitle or pay your share directly to the trust. If a petition is filed, respondents typically have 10 days to answer; schedules vary by county.
3. Trustee opens a dedicated trust account, receives the funds, and provides required notices to SSI/Medicaid. If the court was involved, obtain the order directing distribution, then complete funding.

Exceptions & Pitfalls

• A revocable or self-settled trust without special needs terms won’t protect eligibility; creditors can reach assets to the extent they can be distributed to you.
• Accepting any distribution before the trust is in place can make the funds countable and disrupt SSI/Medicaid.
• First-party special needs trusts often must include a Medicaid payback at your death; third-party trusts do not.
• Disclaimers are irrevocable and you cannot direct where the disclaimed share goes; it passes as if you predeceased under the will.
• If you seek court approval, make sure all necessary parties are properly served; respondents typically have 10 days to answer in a trust proceeding.

Talk to a Estate Planning Attorney

If you’re facing an inheritance that could affect SSI or Medicaid, 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.