Most parents of children with disabilities spend years focused on therapies, medical appointments, school services, and daily support needs. In the midst of all of that, one important question is often left unanswered: What will happen to my child when I am no longer able to care for them?
Estate planning for a child with a disability is more nuanced than traditional estate planning. It is not only about deciding who receives your assets after you are gone. It is about creating a long-term plan that provides financial support, protects eligibility for essential government benefits, and ensures that trusted people are in place to help manage care in the future.
Why a Simple Will Is Not Enough
Many families assume that a basic will is sufficient. However, leaving assets directly to a child of any age with a disability can create unintended consequences. Government benefits such as Medicaid, Waiver, and Supplemental Security Income (SSI) are based on financial need. If a person with a disability receives an inheritance outright, even a modest one, they may become financially ineligible for these benefits. This can be especially serious because Medicaid often provides essential health coverage and long-term services such as in-home care, day programs, and residential support.
If no planning is in place, additional complications may arise. The probate court may need to appoint a guardian to manage the person’s finances. This process can involve ongoing court supervision, fees, and administrative requirements that could have been avoided with proper planning. Another alternative, disinheriting the child with the disability, can be equally problematic.
The Role of a Special Needs Trust
One of the most important planning tools available is a discretionary trust, commonly referred to as a third-party special needs trust. This type of trust is created and funded by parents or other family members and is designed to benefit a person with a disability without affecting their eligibility for needs-based benefits.
When properly drafted, this type of discretionary trust allows assets to be held and managed for the benefit of your child while preserving access to programs like Medicaid and SSI. The trust can be funded with assets such as life insurance proceeds, investments, and real property. You get to decide who receives any remaining funds after your child passes away and there is no obligation to repay Medicaid.
Choosing the Right Trustee
The trustee is the person or entity that is responsible for managing the trust. This role is extremely important. The trustee must understand how to use trust funds to improve the beneficiary’s quality of life without interfering with public benefits. A trustee doesn’t have to do it alone; the trust agreement can allow the trustee to hire professionals such as a care manager, tax preparer, investment advisor, attorney, and property manager to help ensure the trust is properly administered, and the beneficiary’s needs are being met.
The trustee may be a family member, trusted friend, attorney, or bank. In some cases, parents choose co-trustees to balance personal knowledge of the beneficiary with financial management experience.
Planning Flexibility
It is never too early to begin planning. The minor or adult child does not need to be receiving government benefits to create a discretionary trust. In fact, the trust can be written to grant the trustee flexibility if the person with the disability is not reliant on needs-based benefits in the future. It is also possible to create a single trust that multiple people, including parents, siblings, grandparents, and anyone other than the person with the disability, designate to receive their assets. This creates a cohesive plan and can reduce the overall expense of estate planning.
A Letter of Intent: Sharing What Matters Most
Many parents also prepare a letter of intent. While it is not a legally binding document, it is an important guide for future caregivers and trustees. It can describe your child’s daily routines, medical history, preferences, strengths, goals, and anything else that helps others provide consistent care.
Planning Is for Every Family
Estate planning is not only for wealthy families. It is essential for anyone who wants to ensure that a loved one with a disability is protected and supported in the future.
If you have a child with a disability, now is the time to review your estate plan. With the right combination of a will, beneficiary designations, and a properly drafted trust, you can help ensure your child is protected.
We Can Help
Hickman Lowder has been advising clients on special needs estate planning for decades. Please call our office to schedule a consultation to discuss your estate planning needs. We also offer complimentary seminars such as our “Trustee School” to help educate clients and future trustees on topics like administering first-party and third-party special needs trusts and changes to benefit eligibility.