Direct Answer from Janet L. Gemmell, Board-Certified Family Law Specialist
“In North Carolina, a Special Needs Trust (SNT) acts as a high-tech financial firewall, protecting your special needs child’s eligibility for essential government benefits like Medicaid and SSI while ensuring they have the resources for a ‘quality of life’ that the state’s bare-minimum budget doesn’t cover. During a divorce, we weave these trusts directly into your property settlement or custody orders to ensure that child support or inheritance doesn’t accidentally disqualify your child from the very programs they rely on. Think of it as the ultimate guarantee for your child’s future. While your marriage might be ending, your role as their strategic protector is just getting started.”
How Special Needs Trusts Protect Your Child’s Benefits During and After a North Carolina Divorce
When you’re navigating a divorce in North Carolina, your “to-do” list is already exhausting. But when you have a child with a disability, that list isn’t just about who gets the Crock-Pot or the Corolla; it’s about protecting a lifeline.
A Special Needs Trust (SNT) is a legal arrangement where one person manages money and assets for the benefit of another person with a disability. When drafted and administered properly, an SNT allows your child to benefit from the trust assets while maintaining eligibility for critical needs-based public benefits. Without this protection, a sudden influx of cash—like a property settlement or an inheritance—could legally “over-resource” your child, causing them to lose healthcare and income support.
Who is the special needs trust protecting in North Carolina?
How does a special needs trust work during divorce in North Carolina?
In a North Carolina divorce, an SNT works by diverting assets away from the child’s direct ownership and into the hands of a Trustee. Because the Trust holds the legal title, the assets are generally not counted toward benefit eligibility maximums—such as the $2,000 limit for SSI for a single person. This ensures your child remains eligible for programs like Medicaid and SSI while the trust funds provide for goods and services beyond what the government offers.
Matthew Geiger, Partner and Family Law Attorney, notes “I’ll be honest with clients — dealing with the financial side of a divorce is already overwhelming. You’re dividing property, adjusting to new budgets, and figuring out how to support two households instead of one. So when I tell parents in Brunswick County that they also need to consider a Special Needs Trust, the first reaction is usually, ‘How are we supposed to AFFORD that too?’ I understand that reaction, and it’s a fair concern. But when a child has special needs, planning the right way now can make a huge difference in protecting their future”
Here’s what the data tells us, and I’ve looked at this from every angle: the cost of establishing a SNT during the divorce is a fraction of what it costs to fight for one after the fact. During your divorce, you have something you will never have again – leverage. Both parties are at the negotiating table. The judge is actively waiting to divide the resources. Your child’s long-term needs can be written into the agreement with the weight of a court order behind them.
Walk away without it, and you’re looking at one or more separate legal actions down the road in the not so distant future. That would be new filings, new attorney fees, and a co-parent who no longer has any incentive to cooperate. All the attorneys in my firm have seen this play out too many times, and the person who pays the price isn’t you or your ex. It’s your child.
Get it done now. The math does not lie.
The Two Main Types of SNTs You Need to Know
Understanding which trust you need depends entirely on where the money is coming from.
| Feature | Self-Settled (First-Party) | Third-Party SNT |
|---|---|---|
| Source of Funds | Beneficiary’s own assets (e.g., personal injury award) | Assets from someone else (e.g., parents, grandparents) |
| Established By | Parent, grandparent, guardian, or court | A third party |
| Age Requirement | Beneficiary must be under age 65 | No age requirement |
| Medicaid Payback | Required upon beneficiary’s death | Not required |
- Self-Settled (First-Party) Special Needs Trusts
These are funded by the child’s own assets. In a divorce context, this might occur if a child receives a retroactive child support lump sum or a personal injury settlement. The key “catch” here is the Medicaid Payback provision: when the beneficiary passes away, the trust must reimburse the state for medical assistance provided during their life. - Third-Party Special Needs Trusts
These are funded and established by anyone except the beneficiary—usually you, your soon-to-be-ex-spouse, or grandparents. These are incredibly powerful because they do not require Medicaid reimbursement upon the child’s death. This allows you to leave a legacy for your child without the state knocking on the door to collect later.
Why Divorce Makes SNTs More Critical Than Ever
I’m going to tell you something that keeps me up at night—and it should keep you up too.
When I started practicing family law over twenty years ago, autism affected roughly 1 in 150 children. Today? The CDC reports that 1 in 31 children—3.2%—has been identified with autism spectrum disorder. CDC CBS News reported that for boys, the rate in some states is as staggering as 1 in 20. That’s not a gentle climbing bar graph, that’s a steep climb up. In the year 2000, it was 1 in 150. By 2016, 1 in 54. Now, 1 in 31 according to NBC News. Whether that’s better diagnostics, environmental factors, or both—I don’t care about the “why” debate right now. No please do not start on the contrails because I don’t have time. What I care about is the facts I know is that there are exponentially more families who need Special Needs Trusts than there were a generation ago, and most of them don’t even know it yet. The truth, and you can see this as you drive in Wilmington or even in Leland, the homeless populations don’t lie. Without proper SNTs, their children will end up homeless, in a tent somewhere, abused or even in jail.
Now layer on what’s happening right here in North Carolina, especially in Brunswick County and our coastal communities.
Between 2020 and 2024, according to Axios our population over the age of 65 grew by over 15%. The state’s older adult population is projected to double by some sources. And by 2031? North Carolina will have more residents over 65 than children under 18. NC OSBM Let that sink in.
And if you think this is a Raleigh or Charlotte problem, think again. Brunswick County saw one of the largest increases in its 65+ population in the entire state—over 54% growth in just a decade. Carolina Demography Our coastal communities are ground zero for that migration and influx. These are folks who are aging, who may develop cognitive decline or disabilities, and whose families are going to need legal frameworks in place before a crisis hits. They may also be caregivers for adult children with disabilities or special needs. The time for SNTs is now.
So here’s what I need you to understand: these two trends—the surge in autism diagnoses and the rapid aging of our population—are converging into what I believe is going to be one of the most pressing legal planning needs of the next two decades. Special Needs Trusts aren’t a niche product anymore. They’re becoming a necessity for a massive and growing segment of North Carolina families.
And the families going through divorce right now? They’re sitting in the exact right seat at the exact right time to get this done. You have a judge. You have a negotiating table. You have two parties who are legally required to address the well-being of their children and, in many cases, aging dependents. Walking away from a divorce without addressing an SNT when you know your child or loved one qualifies is like leaving money—and protection—on the courthouse steps.
This is personal for me. As a step-mom, bonus parent, aunt and as someone who has spent her career fighting for children, I watched what happens when families don’t plan. And I’ve watched what happens when they do. The difference isn’t subtle. It’s everything.
At Cape Fear Family Law, we don’t treat Special Needs Trusts as an afterthought or an add-on. We treat them as what they are: an essential piece of the puzzle for families navigating some of the most vulnerable moments of their lives. The numbers don’t lie, and quite frankly neither do I, the need has never been greater, and it’s only going to grow.
Marriage, despite its flaws, is often the best vehicle we have for raising healthy, well-adjusted children and creating family wealth. When that vehicle breaks down, the financial partnership doesn’t just disappear—it changes shape. And if you think your ex’s new wife or husband will be charitable and kind to your special needs child – well Good Will Hunting to you too.
Protecting Your “Moral Compass” and Your Wallet Drafting a SNT is becoming highly specialized. You need a family law attorney who understands the intricacies of custody and support, but who also knows when to call in an estate planning expert to draft the specialized versions of the trust itself when there are significant issues that need an expert.
It’s going to cost you to set up a Special Needs Trust and get a divorce, as Matthew Geiger already told you above, but if you don’t do it now, “you’ll pay way more forever because you might end up as the sole support for an adult child with special needs while your ex walks away into the coastal sunset.”
Real NC Cases: What Happens When Trusts Go to Court?
The North Carolina courts have dealt with complex trust and inheritance issues recently, showing just how important clear legal drafting is for your family’s future.
Referring to this case specifically, Janet Gemmell noted, “So yes, the baby born from IVF after the biological father’s death was an heir to be considered for inheritance – the child had inheritance rights! Before any ‘ick factor’ sets in, a small special reminder for my ladies over 30 – get those eggs frozen or better yet fertilized.”
Joan Ingle v. Ibv LLC (2024): In this Mecklenburg County case, the court ordered over $1.6 million to be deposited into a “Payback Special Needs Trust” to ensure an incapacitated adult’s needs were met without jeopardizing Medicaid eligibility. The disability seems to have originated from an automobile accident, and they were arranging the settlement from the accident into a long term solution to care for her daughter for the rest of her life – hence the SNT.
Permissible Distributions (The “Good” List):
- School tuition, books, and supplies
- Medical equipment (like wheelchairs, shower chairs, special walkers) and costs not covered by benefits
- Purchase and maintenance of a vehicle
- Entertainment (movies, books, video games)
- Home care services or massages
Distributions That Might Reduce Benefits (The “Danger” List):
- Cash paid directly to your child
- Food or groceries
- Rent, mortgage payments, or property taxes
- Utilities and clothing
FAQs: Special Needs Trusts and Divorce
Can I use child support to fund an SNT? Yes. In fact, if your child receives SSI, having child support paid directly to them (or to you for them) can reduce their SSI check dollar-for-dollar after the first $20. By ordering child support to be paid into an SNT, we can often preserve the full SSI amount. So if you agree to deviate from the North Carolina Child Support Guidelines, even in the face of SSI or other benefits that would normally reduce your child support obligation or award, the existence of a SNL that exists, is designed to pay for your child’s future adult based care and needs, may be sufficient to garner a child support not reduced by the public benefits. This could also ensure your child’s life and future if the funds within the SNT are properly invested and managed.
Who should be the Trustee? A Trustee manages the assets and can be a parent, sibling, attorney, or even a non-profit organization. The only person who cannot be the Trustee is the person with the disability. Be careful though, as we’ve seen in many cases, to specifically designate that someone with a criminal background with financial crimes not be allowed to be a trustee. “You should consider an organization as a back-up trustee,” Matthew Geiger tells us, “just in case the person you choose refuses the appointment for some reason that is not presently known or is not available.”
What if we already have a trust? We need to review it immediately – so make sure you share it with your attorney. Do not expect that an attorney who is handling your emotional outbursts, your contempt against your ex and their actions, and the divorce actions to simply intuit or know by diffusion that you have a trust – TELL THEM! Divorce can change tax statuses and beneficiary designations. As seen in Clark v. Tyco, courts can and do modify or terminate trusts if the circumstances change—such as your child reaching a new level of independence.
Janet’s “Hard Truth” Corner
But here’s what separates the extraordinary from the ordinary: it’s choosing to empty the bedpan instead of losing your temper and throwing it out a window at your neighbor’s backyard bar-b-que in full swing. It’s showing up again every morning to make scrambled eggs exactly the same way each day, when every part of you wants to quit. The kindness in the kiss on their forehead is amazing. That choice—that daily, unglamorous, nobody-sees-it choice—is what makes you nothing short of remarkable. You take care, you do care, and we want to take care of your legal needs.
Next Steps: Are You Protected?
