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

1. 1. Maryland’s trust law is one of the most protective in the country.
   Section 14.5-1002 of the Maryland Trust Act explicitly encourages families to use special needs trusts. There are no limits on how much you can put in, no transfer penalties, and no court order needed for funding or distributions. The law also says state agencies can’t adopt rules more restrictive than federal law when it comes to trusts. That’s rare — and it’s a genuine advantage for Maryland families.
2. 2. First-party trusts require Attorney General approval. (For first-party SNTs)
   If the trust is funded with your child’s own money (a settlement, inheritance, or back pay), the trust document must be submitted to and approved in writing by the Maryland Attorney General’s office before it’s established. Your attorney must mail a compliance checklist along with the trust document. This adds weeks to months to the process — plan ahead. Third-party trusts (funded by family) don’t need this approval.
3. 3. Maryland Medicaid estate recovery is limited to probate assets — but the rules depend on which type of trust you have.
   (For third-party SNTs) — Maryland is a probate-only estate recovery state. That means if your family’s assets pass outside of probate — through a third-party special needs trust, joint tenancy, beneficiary designations, or transfer-on-death accounts — Medicaid can’t touch them. A properly structured third-party trust is never subject to estate recovery. This is a significant planning advantage for Maryland families.
   
   (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 Maryland 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.
4. 4. Maryland taxes trust income at both the state AND county level.
   This catches families off guard. Maryland is the only state where counties levy their own income tax on trusts. The state rate goes up to 6.50%, and county rates add another 2.25% to 3.30% on top of that — for a combined state and local rate that can reach 9.80%. Which county rate applies depends on where the trust is administered, not where your child lives. Your trustee needs to understand this.
5. 5. SSI recipients automatically qualify for Maryland Medicaid.
   Maryland is a “1634 state” — if your child receives SSI, they’re automatically enrolled in Medicaid with no separate application. This simplifies the benefits picture considerably. For families where the beneficiary works, Maryland’s Employed Individuals with Disabilities (EID) program offers Medicaid with no income limit and a $10,000 asset limit (far higher than the standard $2,000).
6. 6. The trust can pay for groceries without reducing your child’s SSI.
   This changed in October 2024. Before that, buying food with trust money counted as “in-kind support” and cut the SSI check. It doesn’t anymore. Your trustee should be updating their distribution practices to take advantage of this.
7. 7. The trust paying for housing DOES still reduce SSI.
   Rent, mortgage, utilities — if the trust pays those, SSI goes down by up to about $351/month. In the DC suburbs where housing costs are steep, that’s often a tradeoff worth making. But your trustee needs to understand it before writing checks.
8. 8. Maryland’s ABLE program offers a state tax deduction.
   Each contributor can deduct up to $2,500 per year from their Maryland taxable income for ABLE contributions — and if you contribute more than that, the excess carries forward for up to 10 years. Many families miss this. The money grows tax-free, qualified withdrawals are tax-free, and as of 2026, anyone whose disability began before age 46 is now eligible.
9. 9. The DDA waiver waitlist is long — and facing historic budget cuts.
   Maryland’s Developmental Disabilities Administration has 4,000 to 8,000+ people waiting for waiver services. The End the Wait Act (2022) was supposed to cut that in half by 2028, but two consecutive years of budget cuts — $164 million in FY2026 and another $150 million proposed for FY2027 — threaten that goal. Get on the waitlist now, even if your child doesn’t need services yet.
10. 10. Maryland has supported decision-making as a legal alternative to guardianship.
    Since 2022 (SB 559), Maryland law allows adults with disabilities to designate “supporters” who help them understand decisions and communicate choices — without giving up any legal rights. Courts are now required to consider SDM before granting guardianship. If you’re approaching your child’s 18th birthday, start here before jumping to guardianship.
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), Maryland law (Md. Code, Est. & Trusts § 14.5-813) 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. Maryland’s asset limit for Medicaid is just $2,500. Every dollar meant for your child needs to go through the trust, not to them.
2. Not understanding the AG approval requirement for first-party trusts. If the trust is funded with your child’s own money, the Maryland Attorney General’s office must review and approve it in writing before it’s established. This takes weeks to months. Families who don’t know this scramble when a settlement arrives or an inheritance needs to be protected quickly. Plan ahead — or use a third-party trust when possible.
3. Giving your child a debit card linked to the trust account. The moment your child can swipe that card, the entire trust balance becomes a countable asset. Benefits gone. The trustee must control distributions.
4. Not factoring in the state and county double tax. Maryland is the only state where trusts pay both state income tax (up to 6.50%) and county income tax (up to 3.30%). A family member who volunteers as trustee may not realize they’re signing up for two tax filings every year. Consider whether a professional trustee or pooled trust makes more sense for your situation.
5. Missing the ABLE tax deduction. Maryland gives you a $2,500 state tax deduction per contributor per year for ABLE account contributions — and if you contribute more, the excess carries forward for 10 years. Many families either don’t open an ABLE account or don’t know about the deduction. That’s money left on the table.
6. Assuming the DDA waitlist moves quickly. There are 4,000 to 8,000+ people waiting for waiver services, and the state is cutting the DDA budget, not growing it. Get your child on the waitlist now — even if they don’t need services today. The Community Pathways Waiver is the main program, and it can take years to get in.
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 — 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 Maryland special needs law. Find Maryland attorneys →

Beyond the Trust: Other Maryland Planning Steps

Guardianship: When your child turns 18, you may need legal authority to help with decisions. Maryland offers both guardian of the person and guardian of the property, limited guardianship, and supported decision-making (SDM) — a less restrictive option that became law in 2022. Compare your options →
Medicaid Waivers: Maryland’s Community Pathways Waiver (consolidated in October 2025) has 4,000–8,000+ people waiting — get on the list now, even if you don’t need services yet. Learn about waivers →

DDA Budget Alert (2026)

Maryland’s DDA budget faces a second consecutive year of cuts — $150 million proposed for FY2027 on top of $164 million in FY2026. With federal matching funds, the total impact could reach $300 million. Proposed changes include a $500,000 cap on individual budgets, elimination of the LISS program (affecting ~2,500 families), and cuts to self-directed services. If your family depends on DDA waivers, contact your state legislators.