Nebraska Special Needs Trust Rules (2026) | Complete State Guide

1. 1. Nebraska has an inheritance tax — and trusts don’t avoid it.
   Nebraska is one of only six states that still charges an inheritance tax. If you leave money to your disabled child (even through a trust), the tax still applies. Immediate family pays 1% on amounts over $100,000. Extended relatives pay 11% over $40,000. Non-relatives pay 15% over $25,000. Surviving spouses are exempt. This catches a lot of families off guard — plan for it when you’re structuring your estate.
2. 2. Nebraska Medicaid estate recovery is among the most aggressive in the country — but the rules depend on which type of trust you have.
   (For third-party SNTs) — A third-party special needs trust is one of the few tools that actually works here. Under Neb. Rev. Stat. 68-919, Nebraska’s Medicaid estate recovery reaches joint tenancy property, transfer-on-death deeds, living trusts, life insurance, retirement accounts, and more. Many families think a TOD deed or joint account avoids Medicaid — in Nebraska, it doesn’t. But because a third-party trust was never the beneficiary’s money, Medicaid can’t touch it. Whatever’s left passes to whoever you name.
   
   (For first-party SNTs) — Different rule. Because this trust was funded with your family member’s own money, federal law (42 USC §1396p) requires that any funds left in the trust when they pass away must first reimburse Nebraska Medicaid for benefits paid during their lifetime. This isn’t estate recovery — it’s a payback clause built into the trust itself. Whatever remains after Medicaid is repaid goes to the family. This is the tradeoff for protecting benefits during your family member’s life.
3. 3. Nebraska eliminated its developmental disabilities waitlist in 2025.
   After years of waiting (sometimes six years or more), Nebraska cleared its entire DD waitlist in August 2025, investing over $18 million in state funds to serve 3,000+ individuals. If your family was waiting or assumed there was no point applying, things have changed. Contact Nebraska DHHS now to start the process.
4. 4. Trust income is taxed at 4.55% — but rates are dropping.
   Nebraska taxes trust income at a top rate of 4.55% in 2026 (down from 5.20% last year), with a further reduction to 3.99% planned for 2027. It’s not the worst in the country, but it’s not zero either. Your attorney and tax preparer should coordinate to minimize what the trust pays.
5. 5. Existing trusts can be converted to special needs trusts without going to court.
   Nebraska adopted the Uniform Trust Decanting Act in 2020, and it includes a specific provision (Neb. Rev. Stat. 30-4513) that allows trustees to convert regular trusts into special needs trusts — even when the trustee has only limited discretion. If a grandparent left money in a standard trust and your child needs benefits, this law can save the day. Your attorney just needs to know it exists.
6. 6. Nebraska is an SSI-criteria state — Medicaid isn’t automatic.
   In many states, qualifying for SSI automatically qualifies you for Medicaid. Nebraska isn’t one of them. Your child needs to apply for Medicaid separately through Nebraska DHHS, even if they already receive SSI. Don’t assume it’s handled.
7. 7. Katie Beckett coverage lets children qualify regardless of parent income.
   Nebraska’s Katie Beckett (TEFRA) program means children with disabilities from birth to 18 can qualify for Medicaid based on the child’s resources alone — parent income doesn’t count. It expanded in 2024 to include children with developmental disabilities and ICF-level care needs. There’s no waitlist. If you haven’t applied, do it.
8. 8. The trust can pay for groceries without reducing your child’s SSI.
   This changed nationally in October 2024. Before that, buying food with trust money cut the SSI check. It doesn’t anymore. Make sure your trustee knows.
9. 9. The trust paying for housing DOES still reduce SSI.
   Rent, mortgage, utilities — if the trust pays those, the SSI check goes down (up to about $351/month in 2026). That’s the tradeoff, and it’s worth understanding before your trustee starts writing checks.
10. 10. Limited guardianship is the default in Nebraska — not full guardianship.
    Nebraska law requires courts to impose the least restrictive option. Full guardianship takes away all your child’s decision-making rights, but Nebraska judges must grant limited guardianship unless there’s clear and convincing evidence that full guardianship is needed. That’s a strong legal standard. As of 2025, the state also requires FBI background checks for all permanent guardians and conservators. Nebraska doesn’t have a supported decision-making law yet (a 2024 bill died), but limited guardianship combined with powers of attorney can preserve significant autonomy.
11. 11. The person managing the trust (the “trustee”) has to account for every dollar — no matter what type of trust you set up.
    Whether you created a third-party trust (funded with your money) or your child has a first-party trust (funded with theirs), Nebraska law (Neb. Rev. Stat. § 30-3878) gives your family the right to request a full accounting of how trust money is being spent. This isn’t optional — it’s the law. If a bank, attorney, or family member is serving as trustee and won’t show you where the money is going, that’s a red flag.

From my 15+ years helping families (including my own):

1. Not knowing Nebraska’s Medicaid recovery reaches everything. Most families assume a TOD deed, joint bank account, or life insurance policy avoids Medicaid. In Nebraska, it doesn’t. Under Neb. Rev. Stat. 68-919, Medicaid can recover from joint tenancy, TOD deeds, living trusts, insurance, and retirement accounts. A properly drafted special needs trust is one of the few things that actually protects your family.
2. Forgetting about inheritance tax. Nebraska is one of just six states with an inheritance tax. A well-meaning grandparent leaves $150,000 to a grandchild in a trust — and the family owes $500 in inheritance tax (1% over $100,000) before the trust even begins working. For non-relatives (like a family friend naming your child), the rate jumps to 15%. Factor this into your estate plan.
3. Leaving money directly to your disabled child. A grandparent leaves $50,000 in a will to your child — and destroys their SSI and Medicaid. In Nebraska, where Medicaid requires a separate application and estate recovery is expanded, the damage is especially severe. Every dollar meant for your child needs to go through the trust, not to them.
4. Not knowing you can convert an existing trust into an SNT. Nebraska’s 2020 Decanting Act lets trustees restructure a standard trust into a special needs trust — without going to court. If a relative left money in a regular trust and your child now needs benefits, this can save everything. But most families (and some attorneys) don’t know the law exists.
5. Creating the trust but never funding it. A trust sitting in a drawer with no assets in it protects nothing. The trust only works if you actually move assets into it — bank accounts, life insurance beneficiary designations, your will. I’ve seen families spend thousands on an attorney and then never take the next step.
6. Missing the Enable ABLE account tax deduction. Nebraska’s Enable Savings Plan offers a $10,000 state income tax deduction for contributions — and anyone who files a Nebraska return can claim it, not just the account owner. On top of that, Nebraska won’t recover Enable account funds for Medicaid. Families leaving this money on the table are losing hundreds of dollars a year in tax savings.
7. Assuming full guardianship is the only option at 18. Nebraska law actually defaults to limited guardianship. Full guardianship strips all decision-making rights and requires clear and convincing evidence. A limited guardianship, combined with powers of attorney for specific areas, can give you the authority you need while preserving your child’s autonomy. It’s also less expensive and less invasive.

The best way to avoid these mistakes? Work with an attorney who knows Nebraska special needs law. Find Nebraska attorneys →

Beyond the Trust: Other Nebraska Planning Steps

Guardianship: When your child turns 18, you may need legal authority to help with decisions. Nebraska defaults to limited guardianship (preserves more rights) and recognizes conservatorship for financial matters separately. The state doesn’t have a supported decision-making law yet. Compare your options →
Medicaid Waivers: Nebraska eliminated its DD waitlist in August 2025 after years of waiting. Five waiver programs are available (CDD, Family Support, DDAD, Aged & Disabled, TBI). Apply through Nebraska DHHS now. Learn about waivers →