Special Needs Planning

When a parent dies and leaves assets directly to a child who receives means-tested public benefits — SSI, Medicaid, group home funding, vocational support — those assets are counted as available resources. Depending on the amount, the inheritance can make the child ineligible for benefits until the inherited assets are spent down, at which point eligibility may be restored but the money is gone.

This outcome is the opposite of what the parent intended. The goal was to improve the child’s life. The result, without planning, is often a disruption to the benefits structure that was already providing essential support.

The solution is a third-party special needs trust — a trust established by the parent or grandparent, funded at death, that holds assets for the benefit of the child without counting as the child’s own resources for purposes of benefit eligibility. Assets in a properly structured special needs trust can be used to supplement — not replace — what public benefits provide, funding things like transportation, technology, recreation, education, and quality-of-life expenditures that benefits programs do not cover.

The trust is drafted to supplement public benefits rather than replace them. A well- drafted special needs trust gives the trustee clear guidance on what kinds of expenditures are appropriate — and which could inadvertently affect benefit eligibility — so the trustee can act confidently in the beneficiary’s best interest without unintentionally disrupting the benefits structure.

Key drafting considerations include:

• Trustee selection — who will manage the trust assets, make distributions, and advocate for the beneficiary’s interests over what may be a very long trust term
• Successor trustee provisions — who steps in if the primary trustee cannot serve
• Distribution standards — clear guidance on permissible and impermissible expenditures given the beneficiary’s benefits picture
• Trust termination — what happens to remaining trust assets at the beneficiary’s death, including any Medicaid payback obligations that may apply depending on trust structure and funding source
• Coordination with a letter of intent — a non-binding document many parents prepare alongside the trust that describes the child’s daily life, preferences, medical needs, and the kind of care and support the parents hope the trustee will provide

Because the public benefits rules governing trust distributions are detailed and can change, we work with families to make sure the trust is drafted correctly and refer benefits analysis questions — including SSI resource rules, Medicaid waiver program requirements, and allowable expenditures — to specialists in public benefits law when the situation calls for it.

Special needs trusts are not limited to planning for minor children. An adult who acquires a disability — through accident, illness, or a condition that emerges later in life — may face the same challenge: how to hold assets without losing eligibility for SSI, Medicaid, or other means-tested benefits. And when an adult with a disability receives assets directly — through a personal injury settlement, an inheritance, or retroactive benefits — a first-party special needs trust may be the appropriate vehicle to preserve both the assets and the benefits. We assist families navigating these situations as part of our broader special needs practice.

For most parents, the special needs trust does not stand alone — it is one component of a broader estate plan that addresses the full range of what needs to happen when the parents are gone.

That includes making sure the revocable living trust or will directs assets to the special needs trust rather than to the child directly, reviewing beneficiary designations on life insurance policies and retirement accounts to ensure they are aligned with the plan, addressing what happens to the family home or other specific assets, and planning for siblings and other family members alongside the child with a disability.

One of the most common planning gaps we see is a parent who has an estate plan — a will or trust — that leaves assets equally among children, without recognizing that an equal share passing directly to a child with a disability can be more harmful than helpful. Updating the plan to route the child’s share through the special needs trust is often a straightforward fix that makes an enormous difference.

We also help families think through the human dimensions of the plan — who will serve as trustee, how that person understands the child’s needs and values, and whether a professional or institutional trustee makes more sense than a family member for a trust that may last decades.