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Mastanduno Law Group Sept. 14, 2020

Planning for A Special Needs Child

Having a special needs child requires planning to meet their immediate and long-term financial needs. A special needs trust can help provide for their needs into adulthood and after you die. This trust should be considered in your estate planning.

Special Needs Trust

These trusts are used to provide benefits to a person with special needs while continuing their eligibility for government benefits. Parents or guardians usually establish these trusts and name their special needs child as beneficiary.

A third-party trustee is appointed and has the authority to make disbursements from the trust’s assets on the beneficiary’s behalf. This helps parents assure that their child’s needs are met even after they die.

A sibling is often named as the trustee. Provisions creating a special needs trust may be incorporated into parent’s revocable trust and do not have to be a separate document.

Protecting Benefits

Any estate assets left directly to a beneficiary can jeopardize government benefits. These trusts provide more resources to a special needs beneficiary without taking away benefits.

Benefits such as supplemental security income and Medicaid are means tested and available to recipients with extremely limited income or assets. An SSI recipient, for example, is restricted to $2,000 of countable resources.


A third-party special needs trust, or a family trust, is the most common type. Family members fund these trusts to assure that specific benefits are set aside for the beneficiary’s expenses such as utilities, education, or entertainment.

To preserve government benefits, the trust should specifically prohibit distributions for food, shelter or medical benefits that are typically covered by those benefits. The grantor can fund the trust by transferring assets during their life or through a life insurance policy.

A second-to-die whole life policy may be recommended for middle income cases. This allows the parents to supplement their child’s needs during their life and continue to fund those needs with life insurance after they die.

First-party trusts are established with the special needs person’s assets. This may be helpful if that person directly receives an inheritance, insurance payout or personal injury settlement which can impact their benefits.

Pooled trusts are managed by a nonprofit association instead of a trustee selected by the grantor. When the beneficiary dies, any remaining assets are distributed to the state or the nonprofit.

Finally, Congress established 529 ABLE accounts in 2014. These accounts are not trusts but allow up to $15,000 to be set aside annually for the special needs person’s benefit.

A letter of intent gives helpful but non-legal binding guidance that help take care of the beneficiary’s needs. An attorney can draft the trust and related documents and help assure that they meet your needs.


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