Jan112026
Estate Planning Q&A Series

What other trust or asset-protection options can I use to keep my benefits if a special needs trust isn’t allowed in my situation? – North Carolina

Short Answer

In North Carolina, if a traditional special needs trust is not available, other options may still help protect Medicaid eligibility, depending on the type of benefit and the reason the trust is “not allowed.” Common alternatives include a Medicaid pooled trust, an ABLE account (if the disability began before age 26), and a careful “spend-down” plan that converts cash into exempt or non-countable items. The right choice depends on whether the benefit at risk is Medicaid, SSI, or a needs-based Medicaid program, and on the timing and source of the lump sum.

Understanding the Problem

In North Carolina, can a person who receives disability benefits and has a lump-sum back payment use another trust or asset-protection tool to avoid losing Medicaid when a special needs trust is not available? The decision point is whether the lump sum will be treated as a countable resource for the Medicaid program involved, and whether it can be moved into a permitted vehicle or spent in a permitted way before the eligibility review.

Apply the Law

North Carolina Medicaid eligibility is tied to federal Medicaid rules and state administration, and the details can vary by Medicaid category. In general, Medicaid looks at whether a person has “countable resources” above the program limit; cash sitting in a bank account is usually the most obvious resource that triggers problems. When a special needs trust is not available (for example, because the money source, trust type, or required terms do not fit), the most common lawful alternatives focus on (1) placing funds into a permitted pooled trust arrangement, (2) using an ABLE account when eligible, or (3) spending the funds on allowed items and services so the person is not holding excess countable cash at the time of review.

For many disability-based Medicaid categories, the county department of social services (DSS) is the practical “front desk” for eligibility, while the North Carolina Department of Health and Human Services (DHHS) administers the program statewide. North Carolina law also recognizes and regulates Medicaid pooled trusts, including payback and “sole benefit” administration requirements.

Key Requirements

  • Match the tool to the benefit at risk: SSDI itself is not needs-based, but Medicaid eligibility often is. The best option depends on whether the person is on Medicaid through an SSI-related pathway, a medically needy pathway, or a waiver program.
  • Use a permitted vehicle (or permitted spending): If cash is countable, it usually must be moved into a legally permitted structure (such as a pooled trust subaccount) or spent down on allowed items/services before the eligibility snapshot date.
  • Follow program rules on timing and documentation: Transfers, trust funding, and large expenditures often require clear records showing where the money came from and how it was used, and some transfers can create penalties depending on the program.

What the Statutes Say

Analysis

Apply the Rule to the Facts: The facts describe a person receiving disability benefits (including SSDI) who has a lump-sum back payment and is concerned about Medicaid eligibility in North Carolina. The core issue is that holding a large lump sum in a bank account may be treated as a countable resource for the Medicaid category involved. If a special needs trust is not available, the most common next options are (1) a North Carolina-compliant Medicaid pooled trust subaccount, (2) an ABLE account if the person qualifies, or (3) a documented spend-down plan that reduces countable cash while meeting the person’s needs.

Process & Timing

  1. Who acts: The Medicaid applicant/recipient (often with a family member or agent under a power of attorney). Where: The local county DSS for eligibility and renewals in North Carolina. What: Gather award letters, bank statements, and proof of the lump-sum payment source; identify the Medicaid program category and the month the lump sum was received. When: Before the next Medicaid review/recertification date or before applying, because eligibility is often assessed based on resources as of a specific point in time.
  2. Choose the alternative: If a pooled trust is appropriate, coordinate enrollment and funding of a subaccount and confirm the trust’s “sole benefit” spending rules. If an ABLE account is appropriate, open the account and deposit within program limits. If spend-down is the best fit, create a written plan and keep receipts and contracts.
  3. Report and document: Provide DSS with the requested verification showing where the funds went (trust funding confirmation, ABLE statements, receipts for purchases, and proof of any debts paid). Expect follow-up questions if the transactions are large or close in time to an application or renewal.

Exceptions & Pitfalls

  • SSI vs. SSDI confusion: SSDI is not needs-based, but Medicaid often is. Planning should focus on the Medicaid rules for the specific program category, not on SSDI itself.
  • Using the wrong trust type: Some trusts that “sound like” special needs trusts do not work for Medicaid/SSI purposes if they are revocable, allow improper distributions, or lack required payback terms. A pooled trust must follow North Carolina’s statutory framework and “sole benefit” limits. See, e.g., N.C. Gen. Stat. § 36D-7.
  • Unplanned gifting or transfers: Giving money away to get under a resource limit can trigger penalties in some Medicaid contexts. Even when a transfer is not penalized, it can create documentation problems at renewal.
  • Spend-down mistakes: Paying for someone else’s expenses, buying non-allowed items, or taking cash withdrawals without receipts can create eligibility issues because DSS may treat the funds as still available or as an improper transfer.
  • ABLE account eligibility limits: ABLE accounts can be powerful, but they are not available to everyone and have contribution and balance-related rules that must be followed.

Conclusion

In North Carolina, when a special needs trust is not available, the most common alternatives for protecting Medicaid eligibility are a Medicaid pooled trust, an ABLE account (if eligible), or a documented spend-down that converts countable cash into permitted purchases or payments. The controlling issue is whether the lump-sum back payment will be treated as a countable resource at the time DSS verifies eligibility. The next step is to identify the Medicaid category and complete the chosen plan before the eligibility review month.

Talk to a Estate Planning Attorney

If you’re dealing with a disability back payment and concerns about keeping 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.

Category: Estate Planning Q&A Series

Author: Pierce Law

Pierce Law Group is a North Carolina law firm focused on probate administration, real estate partition matters, and surplus funds claims across North Carolina. We know these situations often come with stress, family dynamics, and time-sensitive decisions—so we prioritize clear communication, steady guidance, and a practical plan from day one. Our goal is to make a complicated process feel manageable, while protecting what matters most to you.