Careful planning for a loved one with disabilities is one of the most important and compassionate acts you can take as a parent or caregiver. It’s not just about securing their financial future, it’s about preserving their dignity, access to care, and quality of life after you’re gone.
The following 10 tips can help you prepare a comprehensive, thoughtful special needs plan that protects your child without jeopardizing their eligibility for critical government benefits like Medicaid and Supplemental Security Income (SSI).
1. Think Carefully About Asset Division Between Children
Equal doesn’t always mean fair. Your child with a disability may require more support to thrive throughout their lifetime. It’s okay to allocate your assets based on need rather than dividing them equally. Clear communication with your other children about your reasoning can help prevent misunderstandings and family conflict.
2. Avoid Disinheriting Your Child with Special Needs
It may seem logical to disinherit your child to preserve their eligibility for benefits, but there’s a better way. A 3rd Party Supplemental Needs Trust (SNT) allows you to provide for your child’s supplemental needs—without impacting their eligibility for means-tested public benefits.
Some parents elect to leave assets to their “non-disabled” child with the expectation that the assets will be available and used by that child for his or her sibling with special needs. While this may avoid disqualifying the special needs child from government benefits, it has other risks and complications that may not adequately protect the interest of the child with special needs. For example, the assets being held by the non-disabled child can be diverted or compromised in the event the non-disabled child predeceases the child with special needs; gets divorced; has creditors; or experiences his or own financial pressures. For this reason, it is recommended parents leave assets in Supplemental Needs Trust rather than to the non-disabled child.
3. Choose the Right Trustee
The trustee of a Special Needs Trust plays a crucial role. They must have full discretion over distributions to avoid disqualifying the beneficiary from government programs. Consider:
- Naming a professional trustee or attorney
- Assigning a trust advisor or protector
- Appointing a co-trustee to combine personal insight and professional oversight
4. Understand the Tax Implications
Estate taxes and expenses must be carefully allocated to ensure they don’t unfairly reduce the amount available to your child’s trust. Work with a tax and estate planning professional to structure your plan wisely.
5. Plan for Your Own Incapacity
Include provisions in your durable power of attorney that allow your agent to create and fund a trust for your child, if necessary. This authority is critical if you become incapacitated and need to protect assets while qualifying for Medicaid.
6. Review All Beneficiary Designations
Make sure no assets—such as life insurance, retirement accounts, or joint accounts—pass directly to your child with disabilities. Even a well-meaning gift can disqualify them from public assistance.
7. Use Life Insurance to Fund a Special Needs Trust
Second-to-die (survivorship) life insurance can be an affordable way to fund a Supplemental Needs Trust. The policy pays out after both parents pass and can provide long-term financial support for your child.
8. Be Cautious With Retirement Accounts
Using retirement accounts to fund a Supplemental Needs Trust can trigger immediate tax consequences. Required distributions may also interfere with your child’s benefits. Consult with a special needs planning attorney to structure this wisely.
9. Write a Letter of Intent
A Letter of Intent is a personal document—not legally binding, but incredibly valuable. It communicates your child’s routines, preferences, medical needs, and your hopes for their future. It guides future caregivers and trustees when you’re no longer here to advocate for them.
10. Coordinate With Other Family Members
Relatives may want to leave assets to your child, but doing so without a trust could unintentionally harm your child’s benefit eligibility. Encourage loved ones to contribute to a third-party Supplemental Needs Trust instead, which allows gifts and inheritances to be managed properly.
Final Thought: Consult With a Special Needs Planning Attorney
No two families are alike. Your child may also benefit from having their own simple estate planning documents, such as a will, power of attorney, or health care directive, depending on their capacity.
Planning ahead is the greatest gift you can give a loved one with special needs. With proper guidance and foresight, you can provide peace of mind—for yourself and a secure, fulfilling future for your child.
