In estate planning, one of the most delicate and important goals is providing for a loved one with special needs. Families want to ensure their child, sibling, or other relative is cared for emotionally, physically, and financially, but without unintentionally causing them to lose critical government benefits like Supplemental Security Income (SSI) or Medicaid.
The good news is that thoughtful planning can accomplish both goals. With the right tools, you can leave property and assets to a loved one with special needs in a way that protects their eligibility for public assistance while enhancing their quality of life.
Why Traditional Inheritance Can Cause Problems
When someone with special needs receives more than a minimal amount of money or assets, whether from an inheritance, lawsuit, or gift, it can disqualify them from means-tested government programs. For example:
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SSI limits countable resources to $2,000 for an individual.
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Medicaid eligibility is tied to strict income and asset thresholds.
A well-intentioned inheritance of just a few thousand dollars could cause your loved one to lose access to essential services, including housing assistance, in-home support, and healthcare coverage.
Fortunately, there is a solution.
The Special Needs Trust: A Powerful Planning Tool
A Special Needs Trust (SNT) is designed to hold assets for a person with a disability without affecting their eligibility for public benefits. Because the trust, not the individual, legally owns the assets, they are not counted against the beneficiary for benefit purposes.
Types of Special Needs Trusts
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Third-Party Special Needs Trust
This type is funded with assets that never belonged to the beneficiary such as a parent’s or grandparent’s estate. It’s commonly used in wills or revocable living trusts to set aside funds for a loved one after your death. One of the biggest advantages is that any remaining assets can go to other heirs after the beneficiary passes away and there’s no requirement to repay the state. -
First-Party Special Needs Trust
This is used when the beneficiary already has assets in their name, such as from a personal injury settlement or inheritance. These trusts must be created according to specific rules and require any leftover funds to reimburse the state for Medicaid expenses upon the beneficiary’s death.
What a Special Needs Trust Can Pay For
Funds in a properly managed special needs trust can be used to enrich the beneficiary’s life without interfering with government aid. Allowable uses may include:
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Out-of-pocket medical and dental care
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Education and tutoring
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Travel and entertainment
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Hobbies, personal items, and technology
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Transportation and vehicle expenses
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Companion or caregiving services not covered by Medicaid
The trustee must use discretion and follow rules to ensure distributions do not violate benefit eligibility which is why selecting the right trustee is essential.
Appointing the Right Trustee
The trustee will manage the assets and make distributions on behalf of the beneficiary. You can choose:
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A trusted family member or friend (ideally someone detail-oriented and familiar with benefit rules)
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A professional trustee, such as a bank or trust company
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A pooled special needs trust managed by a nonprofit organization
Your attorney can help you weigh the pros and cons of each option based on your family’s circumstances and the complexity of the trust.
Don’t Wait to Plan
Creating a special needs trust now ensures your wishes are clearly documented and your loved one is protected. Even if your child or relative is still young or your estate is modest, early planning allows you to:
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Coordinate with other family members (e.g., grandparents who want to contribute)
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Include instructions in your own will or living trust
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Name a guardian or conservator if appropriate
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Avoid probate, delays, and legal disputes later
Final Thoughts
Providing for a loved one with special needs requires more than love and good intentions. It requires a plan. By creating a special needs trust, you can give your family member financial security, continued access to critical benefits, and the opportunity to live a full and supported life.
If you’re ready to begin this important conversation, we’re here to guide you with compassion and clarity. Contact us to schedule a consultation and learn how we can help craft a plan that works for your whole family.