Protecting a Disabled Loved One with a Special Needs Trust

October 4, 2021

The biggest concern for most parents of children with mental or physical disabilities is what will happen to their children when they are gone. Will they have enough money? Who will care for them?

These worries are compounded by that reality that Medicaid is often the only type of health insurance for which their children with disabilities can qualify. Medicaid has strict limits on income and assets. If a child receives an inheritance which exceeds these limits, then they will be declared ineligible for Medicaid benefits. Because Medicaid is administered differently by each state, where you live has a significant impact on benefit amounts and income and asset limits. You can find the Medicaid specifics for where you live by visiting

Furthermore, if your child is drawing Supplemental Security Income (SSI) benefits from the Social Security Administration, exceeding the asset limits of this program can make them no longer eligible for benefits. SSI is a needs-based program and the asset limits are quite low. To get SSI benefits, an individual’s countable resources must not be worth more than $2,000 ($3,000 for a couple).

To keep a child with special needs within the limitations of these government aid programs, parents sometimes take the drastic steps of disinheriting the child or leaving the inheritance to one of the child’s siblings. Most often, neither of these options is a good choice. If you disinherit your child, they will be left with only the basic necessities of housing, food, and clothing provided by government benefits. Making a sister or brother the guardian of the child with special needs puts an undue and unfair burden on the sibling, and they may be unable to fulfill the obligations.

There is a better option — a Special Needs Trust (SNT) (also known as a Supplemental Needs Trust). If you have a special needs child and you want the reassurance that your child will be provided for after your passing, creating an SNT and putting assets into that trust should be components of your estate planning. An SNT allows your child to preserve assets to improve the quality of their life, often without disqualifying them from Supplemental Security Income or Medicaid. SNTs are carefully drafted documents that allow individuals with disabilities to receive an inheritance, the payout from a life insurance policy, a lawsuit settlement, or other funds without losing their eligibility for government benefits. Additionally, such trusts are meant to provide for needs which are “supplemental” to what is being paid for by the government and can include life-enhancing expenses such as:

  • Annual check-ups at an independent medical facility
  • Special dietary needs
  • Education or tutoring
  • Transportation (including purchase and maintenance of a vehicle)
  • Attendance at religious services
  • Out-of-pocket medical and dental expenses
  • Hobby and recreational purchases
  • Money for trips or vacations
  • Entertainment including movies, shows, or sports events
  • And more

Special Needs Trusts are flexible and can be customized to provide funding for the type of care that you would have provided if you were still alive.

Anyone (except the beneficiary of the trust) can contribute money and assets to a Special Needs Trust. Trust contributors can include parents, grandparents, and others whether they are a family member or not. Funds from an SNT cannot be distributed directly to the child with disabilities. Instead, funds must be disbursed to third parties who provide goods and services to the beneficiary. SNTs typically last until the beneficiary passes away or the funds are used up.

It is vital that an SNT be properly drafted to ensure the assets in the Special Needs Trust are not countable for Medicaid and SSI purposes. An estate planning attorney can help you create the trust that best fits your individual needs. If you are interested in learning more, contact the Chicago Disability Attorneys at Nash Disability Law for a referral.