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

1. 1. Vermont is one of only 5 states with Enhanced Life Estate Deeds — and that’s a major planning tool.
   Most states don’t have this. Vermont codified the Enhanced Life Estate Deed (also called a Lady Bird Deed) in 2020 under Title 27, Chapter 6. It lets you keep full ownership and control of your home during your lifetime — including the right to sell, mortgage, or revoke the deed — while automatically passing the property to your chosen beneficiary at death, completely outside of probate. In Vermont, this is a powerful complement to a special needs trust, especially because the state doesn’t allow TOD deeds for real estate.
2. 2. Vermont Medicaid estate recovery is probate-only — but the rules depend on which type of trust you have.
   (For third-party SNTs) This is one of Vermont’s biggest planning advantages. Medicaid estate recovery is limited to assets that pass through probate. Anything in a properly drafted third-party trust, held jointly, or transferred via an Enhanced Life Estate Deed is off the table. Between the trust and the ELED, Vermont families have strong tools to protect assets from Medicaid recovery — but you have to actually use them. Assets sitting in your name alone go through probate, and that’s where Medicaid recovers.
   (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 Vermont 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. Vermont is a 1634 state — SSI approval means automatic Medicaid.
   If your child qualifies for SSI, they automatically qualify for Vermont Medicaid (Green Mountain Care). No separate application, no additional paperwork. This is simpler than states where you have to apply to Medicaid separately with different criteria. Vermont also adds a state supplement of approximately $50/month on top of the federal SSI payment.
4. 4. Vermont has a $5 million state estate tax — and there’s no portability between spouses.
   Vermont is one of about 12 states with its own estate tax. The exemption is $5,000,000, with a flat 16% rate on everything above that. That sounds high, but here’s the catch: there’s no portability. Each spouse gets their own $5M exemption, and if the first spouse doesn’t use theirs fully, the surviving spouse can’t claim the unused portion. A family home, life insurance policies, retirement accounts, and a funded trust can add up. Your attorney should coordinate the trust with estate tax planning.
5. 5. Trust income is taxed at up to 8.75% — among the highest state rates in the country.
   Vermont taxes trust income at graduated rates up to 8.75% on income over $253,525 — plus federal taxes on top. That’s one of the highest trust income tax rates in the nation. A trust is considered a Vermont resident trust if property was transferred by a Vermont resident when it became irrevocable. Your trustee and tax preparer need to coordinate distributions carefully to minimize the combined tax hit.
6. 6. Existing trusts can be modified without going to court — and Vermont’s decanting law is unusually strong.
   Vermont adopted the Uniform Trust Decanting Act (Title 14A, Chapter 14), which lets an authorized trustee move assets from one trust to a new trust with better terms. What makes Vermont’s law notable is Section 1413 — it explicitly allows decanting into special needs trusts and even pooled trusts. If circumstances change, your child’s needs evolve, or the law updates, the trust can adapt without court involvement.
7. 7. The trust can pay for groceries without reducing your child’s SSI.
   This changed in October 2024. Before that, buying food with trust money was treated as income and reduced the SSI check. It doesn’t anymore. This is a big deal for day-to-day quality of life — your trustee can now cover groceries, meal services, and food-related expenses without penalty.
8. 8. The trust paying for housing DOES still reduce SSI.
   Rent, mortgage, utilities — if the trust pays those directly, the SSI check goes down by up to about $351/month in 2026 (one-third of the federal benefit rate plus $20). That’s the tradeoff, and it’s worth understanding before your trustee starts writing checks. Sometimes it makes sense to accept the reduction. Sometimes it doesn’t.
9. 9. Vermont’s disability services system is going through major changes right now.
   In 2025, Vermont is transitioning how it delivers disability services. The intake process for developmental disability services moved to a centralized team (PCG) as of August 2025, and case management is shifting from local designated agencies to independent organizations (Benchmark Human Services or The Columbus Organization). These changes affect over 4,600 people. If your child receives services through DAIL, stay on top of these transitions — they may affect how you coordinate trust distributions with state-funded care.
10. 10. Vermont doesn’t have TOD deeds for real estate — making trust planning essential for property.
    Many states let you put a “transfer on death” deed on your home so it passes outside of probate. Vermont doesn’t. Without a trust or an Enhanced Life Estate Deed, your real estate goes through probate when you die — and that’s exactly where Medicaid can recover. This makes trust planning non-optional for Vermont families who own property and have a loved one on benefits.
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), Vermont law (14A V.S.A. § 813) 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. Leaving money directly to your disabled child. A well-meaning grandparent leaves $50,000 in a will to your child — and destroys their SSI and Medicaid. Vermont’s $2,000 asset limit means even a small direct inheritance can wipe out benefits. Every dollar meant for your child needs to go through the trust, not to them.
2. Not using Vermont’s Enhanced Life Estate Deed for your home. Vermont is one of only 5 states that recognizes these deeds. If you own a home and have a child on benefits, this tool lets your property bypass probate completely — putting it beyond Medicaid’s reach. Vermont doesn’t allow TOD deeds for real estate, so without an ELED or a trust, your home goes through probate. Don’t leave this tool on the table.
3. Ignoring Vermont’s 8.75% trust income tax rate. Vermont has one of the highest state income tax rates on trust income in the country. If your trustee isn’t coordinating distributions with a tax preparer, you could be paying thousands more than necessary. Strategic distributions to beneficiaries in lower tax brackets can significantly reduce the overall tax burden.
4. Not coordinating the trust with estate tax planning. Vermont’s $5 million estate tax exemption sounds generous until you add up your home, life insurance, retirement accounts, and a funded trust. There’s no portability between spouses — if the first spouse dies without using their exemption, it’s gone. Your attorney needs to plan around both the trust and the estate tax together.
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. This is the most common mistake I see.
6. Not realizing both first-party trusts AND ABLE accounts pay Medicaid back in Vermont. If the trust was funded with your child’s own money, Vermont Medicaid gets reimbursed at death. And Vermont exercises its right to recover from ABLE account balances too — the federal law requires it, and Vermont complies. Factor both payback obligations into your planning.
7. Waiting until after you die to set up the trust. If you’re reading this page, do it now. Not next year. Your estate plan, your will, your life insurance beneficiary designations, your Enhanced Life Estate Deed — all of it needs to point to the trust before something happens to you.

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

Important: Vermont ABLE accounts are subject to Medicaid payback at death. Under federal law, after qualified disability expenses and funeral costs are paid, Vermont Medicaid can recover the cost of services provided from the date the ABLE account was opened. This is different from a handful of states that have waived ABLE Medicaid payback entirely. ABLE is still valuable in Vermont — it’s tax-free growth, simple to manage, and the first $100,000 doesn’t count toward SSI’s asset limit — but factor the payback into your planning.

Beyond the Trust: Other Vermont Planning Steps

Guardianship: When your child turns 18, you may need legal authority to help with decisions. Vermont uses “guardianship” for personal matters and also recognizes “conservatorship.” The state doesn’t have a formal supported decision-making law yet, but Vermont’s SDM Task Force (since 2015) actively promotes SDM as a less restrictive alternative. Courts must consider alternatives before granting full guardianship. Compare your options →
Disability Services: Vermont’s Department of Disabilities, Aging and Independent Living (DAIL) administers services through 10 designated agencies. Apply even if you don’t need services today — new intake through PCG at (833) 426-5668. Learn about waivers →