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

1. 1. Pennsylvania has an inheritance tax that catches families off guard.
   PA is one of only six states with an inheritance tax. Transfers to children are taxed at 4.5%, to siblings at 12%, and to everyone else at 15%. Spouse-to-spouse transfers are tax-free. This matters for trust planning because money from a grandparent, sibling, or aunt going into an SNT may trigger inheritance tax. The good news: PA ABLE account assets are exempt from inheritance tax.
2. 2. DHS must approve every special needs trust — not just the court.
   In most states, you draft the trust and you’re done. In Pennsylvania, the Department of Human Services Office of General Counsel must separately review and approve every SNT before it will protect benefits (62 P.S. §1414). Your attorney submits the trust to the DHS Third Party Liability Casualty Unit in Harrisburg. Without this approval, the trust may not be recognized for Medical Assistance purposes.
3. 3. Existing Medical Assistance liens must be paid before funding a first-party trust.
   Under Act 42 of 2005, if your child has received Medical Assistance, all DHS liens and claims must be satisfied before assets go into a first-party SNT. This is a Pennsylvania-specific rule. If your child received MA during childhood, check with DHS for outstanding liens — your attorney must resolve these before the trust can be funded. This is a legal requirement under Act 42.
4. 4. Pennsylvania’s trust income tax is one of the lowest in the region.
   PA charges a flat 3.07% on trust income — the same rate as personal income. Compare that to New Jersey (up to 10.75%), New York (up to 10.9%), or Maryland (up to 5.75% plus local). For a trust accumulating investment income, that difference compounds over years. There are no graduated trust tax brackets in PA — it’s the same flat rate no matter how much the trust earns.
5. 5. The trust can pay for groceries without reducing your child’s SSI.
   This changed in October 2024. Before that, buying food with trust money cut the SSI check. It doesn’t anymore. This is a federal rule change that benefits Pennsylvania families — make sure your trustee knows about it.
6. 6. Housing payments from the trust STILL reduce SSI.
   Rent, mortgage, utilities — if the trust pays those, the SSI check goes down (up to about $377/month in 2026). That’s the tradeoff, and it’s worth understanding before your trustee starts writing checks. Sometimes paying housing directly is still the right call, but run the math first.
7. 7. Get on the PUNS waiting list now — even if you don’t need services yet.
   Pennsylvania doesn’t use a numbered waiting list. It uses the Prioritization of Urgency of Need for Services (PUNS) system, which sorts people into Emergency, Critical, and Planning categories. Over 13,200 people with intellectual disabilities are waiting right now, and your county controls who gets selected when slots open. Register through your county MH/ID office. If your child is 14–16, get on PUNS in the “Planning” category now — the gap between aging out of school at 21 and receiving adult waiver services can be years.
8. 8. PA ABLE accounts don’t pay Medical Assistance back at death.
   Pennsylvania opted out of Medicaid recovery from ABLE accounts — one of only a handful of states to do this. That means money in a PA ABLE account passes to your family after your child’s death, not to the state. Your attorney should be moving money from a first-party SNT into a PA ABLE account (up to $20,000/year) to shift assets from payback-exposed to payback-free.
9. 9. Orphans’ Court practice varies dramatically by county.
   Pennsylvania’s 67 counties each have their own Orphans’ Court division, and the rules for trust administration aren’t uniform. In some counties, the court requires a 3-year budget for principal distributions — stay within the budget and no further approval is needed. Other counties allow a 4% unitrust distribution without separate approval. Philadelphia handles things differently than Lancaster, which handles things differently than Allegheny. Your attorney needs to know your specific county’s practices.
10. 10. Pennsylvania Medicaid estate recovery is limited — but the rules depend on which type of trust you have.
    (For third-party SNTs) — When a Medical Assistance recipient dies, Pennsylvania can only recover from the probate estate (Act 49 of 1994). Assets in trusts, joint accounts with rights of survivorship, and beneficiary designations are not subject to estate recovery. A properly structured third-party SNT has zero recovery exposure.
    
    (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 Pennsylvania Medical Assistance 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.
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), Pennsylvania law (20 Pa.C.S. § 7780.3) 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 planning around Pennsylvania’s inheritance tax. A grandparent leaves $100,000 to fund an SNT — and the family owes 4.5% ($4,500) in inheritance tax before a dime reaches the trust. A sibling’s contribution? That’s 12%. A friend or aunt? 15%. PA is one of only six states with this tax. Your estate attorney and SNT attorney need to coordinate. One bright spot: PA ABLE accounts are exempt from inheritance tax.
2. Skipping the DHS approval step. In most states, you draft the trust, sign it, and fund it. Pennsylvania requires a separate review by the DHS Office of General Counsel (62 P.S. §1414). Without this approval, DHS may not recognize the trust for Medical Assistance eligibility — and your child’s benefits could be at risk. Your attorney must submit to DHS as part of the setup process — this is a legal requirement under 62 P.S. §1414.
3. Waiting until age 21 to register for PUNS. Over 13,200 people with intellectual disabilities are on the PUNS waiting list, and counties — not the state — control who gets selected. If you wait until your child ages out of school at 21, you’ll face a gap of years with no adult services. Register through your county MH/ID office at age 14–16 in the “Planning” category. It costs nothing and it can make all the difference.
4. Confusing guardian of the person with guardian of the estate. Pennsylvania splits guardianship into two separate roles: guardian of the person (medical, residential, personal decisions) and guardian of the estate (financial decisions). You may need one, both, or neither. Act 61 of 2023 now requires courts to treat guardianship as a last resort and consider less restrictive alternatives first. Don’t assume full guardianship is the only option.
5. Not understanding how Orphans’ Court handles trust distributions. In Pennsylvania, distributions from a first-party SNT’s principal often require court approval. The workaround: your attorney submits a 3-year budget to the Orphans’ Court. As long as the trustee stays within the approved budget, no further approval is needed. But this varies by county — some allow a 4% unitrust distribution without separate approval, others don’t. If your trust is stuck in administrative limbo, this is often why.
6. Leaving money directly to your disabled child. A well-meaning relative leaves $50,000 in a will to your child — and destroys their SSI and Medical Assistance. Every dollar meant for your child needs to go through the trust, not to them. With Pennsylvania’s inheritance tax in play, the tax planning and the benefits planning need to happen together.
7. Assuming all pooled trusts work the same way for people over 65. Federal law allows pooled trusts at any age, and the Third Circuit struck down PA’s attempt to ban 65+ deposits (Lewis v. Alexander, 2012). But deposits by individuals 65 and older can still trigger a Medicaid transfer penalty. There are workarounds — smaller monthly transfers below the penalty threshold, or spending plans approved by DHS — but your attorney needs to structure this carefully.

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

Beyond the Trust: Other Pennsylvania Planning Steps

Guardianship: When your child turns 18, you may need legal authority to help with decisions. Pennsylvania offers four types of guardianship (limited or plenary, for person or estate) through Orphans’ Court. Act 61 of 2023 now requires courts to consider less restrictive alternatives first. PA does not yet have a formal supported decision-making law, but judges can consider SDM under existing law. Compare your options →
Medicaid Waivers: PA’s Consolidated waiver is the most comprehensive, but over 13,200 people are on the PUNS waiting list. Register through your county MH/ID office — even if you don’t need services yet. Learn about waivers →

You’ve done your homework. You understand your options. Here’s the honest truth: setting up a special needs trust is not a DIY project. One wrong clause can disqualify your child from the benefits they depend on. In Pennsylvania, you also need an attorney who understands the DHS approval process, Orphans’ Court procedures in your county, and how inheritance tax affects your plan. You need a specialist — not a general estate planner, not the lawyer who did your will.

Research on your own:

• Special Needs Alliance — national network of attorneys focused exclusively on disability and public benefits law. Membership requires demonstrated expertise.
• Academy of Special Needs Planners — attorneys and financial planners who focus on special needs. Search Pennsylvania planners by city.
• Pennsylvania Bar Association Lawyer Referral — official state bar referral service. Ask specifically for attorneys experienced with special needs trusts and Medicaid planning.
• SeniorLAW Center — free legal services for older adults in the Philadelphia area, including special needs and Medicaid planning.

Not sure what to ask or what to expect? Our complete guide to finding an SNT attorney walks through the questions you should ask, the red flags to watch for, and how the process typically works.