Who can serve as trustee, and how should distributions be handled so we don’t jeopardize benefits? – North Carolina

Short Answer

Under North Carolina law, a trustee of a special needs or supplemental needs trust is typically a trusted individual (such as a family member) or a professional or nonprofit trustee, including approved pooled trust programs. To preserve SSI, Medicaid, and other means-tested benefits, the trust must be drafted and administered so funds are used only for the beneficiary’s sole benefit and to supplement—not replace—public benefits. Distributions are usually made by paying third parties for goods and services rather than giving cash directly to the beneficiary, and certain payments (like food and shelter) can reduce SSI if not carefully planned.

Understanding the Problem

The core question is: in North Carolina estate planning for a person with a disability who relies on SSI, Medicaid, or similar programs, who can be named as trustee of a special needs-type trust, and how must that trustee handle distributions so benefits are not lost or reduced? Families often wonder whether a parent, sibling, friend, corporate fiduciary, or a pooled trust is the best choice, and what spending rules apply once the trust is funded. The focus here is on North Carolina special needs planning, not on general revocable living trusts or tax planning.

Apply the Law

North Carolina uses both its general Trust Code and specific disability-planning statutes to govern who may serve as trustee and how special needs or 36D trusts and ABLE accounts must be administered. The key ideas are: (1) the trust must be structured to comply with Medicaid and SSI rules; (2) the trustee must act only for the beneficiary’s sole benefit; and (3) distributions must supplement, not replace, public benefits. The primary forums that come into play are the North Carolina clerks of superior court (for guardianship and protective arrangements) and the Division of Health Benefits (for Medicaid policy).

Key Requirements

Appropriate trustee choice: The trustee must be legally capable, trustworthy, and willing to follow strict disability and public benefits rules; in many cases this is a family member, a bank or trust company, or a nonprofit pooled trust acting as trustee.
Sole-benefit and supplemental use of funds: For pooled Medicaid trusts and similar arrangements, state law and policy require that trust funds be used solely for the disabled beneficiary’s benefit and only to supplement, not duplicate, services already available from government or charitable programs.
Carefully structured distributions: Distributions should be made in forms and for purposes that do not count as countable income or resources for SSI/Medicaid when avoidable, with attention to items like food and shelter that can reduce SSI if paid in certain ways.

What the Statutes Say

N.C. Gen. Stat. § 36D-2 (Definitions for Community Third Party and Medicaid Pooled Trusts) – Defines “Medicaid Pooled Trust,” “beneficiary,” “trustee,” and “sole benefit” for 36D trusts.
N.C. Gen. Stat. § 36D-3 (Scope of 36D Trusts) – Applies the Uniform Trust Code to 36D trusts and makes pooled trustees liable if they do not act for the sole benefit of the beneficiary.
N.C. Gen. Stat. § 36D-4 (Administration; powers and duties) – Describes how Community Third Party and Pooled Trusts are structured and what they can pay for, including burial and supplemental goods and services.
N.C. Gen. Stat. § 36D-7 (Special requests; sole benefit rule) – States that Medicaid pooled trust distributions must be for the sole benefit of the beneficiary.
N.C. Gen. Stat. § 36D-9 (Interest not counted as an asset) – Provides that a qualifying 36D trust interest is not treated as an asset for income eligibility if statutory and regulatory requirements are met.
N.C. Gen. Stat. § 147-86.70 (ABLE policy and definitions) – Establishes North Carolina’s ABLE program framework for disability savings accounts.
N.C. Gen. Stat. § 147-86.73(d) (ABLE and means-tested programs) – Provides that ABLE accounts and qualified disability distributions are not counted as resources or income for state means-tested benefits.

Analysis

Apply the Rule to the Facts: With no specific family facts provided, North Carolina law allows flexibility. A parent, sibling, or other trusted adult may serve as trustee of a third-party special needs trust, and a nonprofit can serve as trustee of a pooled 36D trust. The trustee must spend only for the beneficiary’s sole benefit and avoid replacing what Medicaid or other programs already provide. For example, paying a vendor directly for therapies, transportation, technology, or recreation typically preserves eligibility, while regular cash gifts to the beneficiary could be counted as income and affect SSI.

Process & Timing

Who files: Typically the parent, other family member, or planner creating the trust. Where: The trust instrument itself is usually a private document, sometimes referenced in a will filed with the clerk of superior court after death. If a first-party special needs trust or pooled trust subaccount is created through a protective arrangement, a petition is filed with the clerk of superior court under the North Carolina guardianship statutes. What: A properly drafted special needs trust agreement or joinder agreement to an approved pooled trust, and any related court petitions if required. When: Ideally before the disabled individual receives inheritances, lawsuit proceeds, or account designations, or as soon as such funds are expected.
Once the trust or pooled subaccount is established, the trustee or pooled trust administrator provides information to the Social Security Administration and, when applicable, the Division of Health Benefits, so those agencies can evaluate the trust under SSI and Medicaid policy. This typically occurs at application or redetermination, and the agencies may request copies of the trust and supporting documents.
On an ongoing basis, the trustee reviews benefit rules and makes distributions directly to providers for goods and services that supplement public benefits. The trustee maintains detailed records and, in the case of 36D pooled trusts, ensures compliance with the “sole benefit” and payback requirements overseen by the Department of Health and Human Services. At the beneficiary’s death or trust termination, the trustee follows statutory Medicaid payback and remainder provisions.

Exceptions & Pitfalls

Trusts that do not meet North Carolina’s 36D standards or federal disability rules may be treated as countable resources, causing loss of Medicaid or SSI. Language must track state and federal requirements, especially for first-party and pooled trusts.
Distributions that benefit others (for example, paying for a caregiver’s vacation that is not primarily for the beneficiary) can violate the sole-benefit rule for pooled Medicaid trusts and risk sanctions or loss of eligibility.
Paying for food or shelter may be allowed but can reduce SSI as in-kind support if not structured carefully. Trustees should understand SSI in-kind support and maintenance rules and consider timing and method of payment.
Allowing the beneficiary to receive unrestricted cash from the trust is a common mistake. Regular cash payments are usually treated as income for SSI, and accumulated cash in the beneficiary’s name can exceed resource limits.
Failure to coordinate the special needs trust with ABLE accounts, guardianship, and powers of attorney can create gaps in authority or unnecessary benefit issues. For example, using an ABLE account for small, frequent purchases can be more SSI-friendly than direct cash from the trust.
Trustees of pooled Medicaid trusts face statutory liability if they administer a subaccount in a way that is not for the sole benefit of the beneficiary, regardless of what the trust document says, so they must follow both the trust terms and Department rules.

Conclusion

In North Carolina, a special needs or supplemental needs trust can be managed by a carefully chosen individual trustee, a bank or trust company, or a qualified nonprofit pooled trust, as long as the trustee is willing and able to follow strict disability and public benefits rules. To avoid jeopardizing SSI and Medicaid, the trust must be drafted and administered so funds are used solely for the disabled beneficiary’s benefit and only to supplement, not replace, existing programs, with distributions usually paid directly to vendors rather than as cash to the beneficiary. The key next step is to have a North Carolina estate planning attorney design the trust and trustee provisions to align with current Medicaid, SSI, and ABLE rules before significant assets are directed toward the beneficiary.

Talk to a Estate Planning Attorney

If you’re dealing with North Carolina special needs or supplemental needs trust planning and want to protect SSI or Medicaid while providing extras for a loved one with a disability, 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.