Caring for someone with special needs
Don't disinherit your loved one by accident.
Leaving money directly to a beneficiary with disabilities can disqualify them from SSI and Medicaid. The fix is a special needs trust.
What matters in your case
Get these four things right.
SSI and Medicaid have asset limits
Roughly $2,000 in 'countable' assets. A direct inheritance over that disqualifies the beneficiary until it's spent down — a spectacularly bad outcome.
Third-party special needs trust
You fund it with your own money for the benefit of the disabled person. Distributions can pay for supplemental items (entertainment, travel, education) without counting as income to the beneficiary.
First-party SNT for their own assets
If the disabled person already has assets (e.g., a personal-injury settlement), a different SNT structure preserves benefits but requires a Medicaid payback at death.
ABLE account complement
ABLE accounts let beneficiaries save up to $18k/year (more if working) without losing benefits. Often used alongside an SNT, not instead of.
The longer answer
Estate planning for a beneficiary with a disability is one of the few areas where a generic will is actively dangerous. A standard residuary clause that leaves an equal share to a child with disabilities can — and routinely does — disqualify them from SSI and Medicaid. The very thing you tried to do for them ends up costing them the benefits they need.
The fix is a special needs trust (SNT). Plain English: instead of leaving money to the disabled person directly, you leave it to a trust whose trustee can spend on the disabled person's behalf for things SSI/Medicaid don't cover — but the principal isn't the beneficiary's asset. Benefits stay intact. Quality of life improves.
There are two main flavors. A third-party SNT is funded with someone else's money (yours, on behalf of your child). A first-party SNT (also called a self-settled or d4A trust) is funded with the disabled person's own money — typically a settlement — and requires Medicaid payback at the beneficiary's death. They're similar in effect but legally distinct, and the wrong one can mean the trust is countable.
An ABLE account is the newer option: a tax-advantaged account the disabled person owns, capped at $18k/year contributions and $100k total without affecting SSI. ABLE complements an SNT — they handle different needs.
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