Planning for a Loved One with a Special Needs Trust 

For parents and caregivers of individuals with special needs, one question often rises above all others: What will happen when I’m no longer here to help care for them? 

It’s a difficult topic to think about, but it’s also one of the most important planning conversations a family can have. 

Many families spend years, even decades, providing care, coordinating medical services, advocating for benefits and making financial decisions on behalf of a loved one with special needs. Naturally, they want their estate plan to continue that support into the future. Learn more about the basics of estate planning in our blog. 

However, leaving assets directly to a loved one with special needs can create unintended consequences. Without proper planning, an inheritance could affect eligibility for valuable government benefits that help support long-term care and daily living expenses. Fortunately, there are strategies available that may help families provide financial support while preserving access to those benefits. One of the most commonly used tools is a special needs trust. 

Why special needs planning matters 

Families often assume that naming a child with special needs as a beneficiary in a will, retirement account or life insurance policy is the best way to provide financial support. 

While the intent is understandable, the outcome may not align with a family’s goals. 

Many government assistance programs, including Medicaid and Supplemental Security Income (SSI), are means-tested. An individual who receives assets outright may exceed eligibility limits and risk losing benefits that help cover healthcare, support services and other essential needs.  

This creates a planning challenge for many families: 

• They want to leave money to a loved one. 
• They want to improve their loved one’s quality of life. 
• They want to preserve access to important public benefits. 
• They want confidence that the assets will be managed appropriately. 

A comprehensive special needs plan can help address all four objectives. 

What is a special needs trust? 

A special needs trust is a legal arrangement that can hold and manage assets for a person with disabilities. Rather than transferring money directly to the beneficiary, assets are placed into a trust and managed by a trustee according to the terms established by the person creating the trust.  

Because the assets are owned by the trust rather than the individual, a properly structured special needs trust may help preserve eligibility for certain government benefits while still making funds available to enhance the beneficiary’s quality of life. 

In simple terms, a special needs trust can serve as an additional layer of financial support without replacing the benefits that may already be helping meet essential needs. 

Common misconceptions about inheritance and special needs 

One of the most common misconceptions is that a trusted sibling can simply manage an inheritance on behalf of a brother or sister with special needs. 

Many parents assume an estate can be divided equally among children and that family members will work out the details later. 

The reality is often more complicated. 

Without proper planning, assets left directly to a loved one with special needs may affect benefit eligibility. In addition, relying solely on family members to manage inherited assets can create administrative, legal and emotional challenges over time. It can also place a significant responsibility on a sibling who may already be balancing their own family, career and financial obligations. 

Thoughtful planning can help reduce uncertainty and create a clearer path forward for everyone involved. 

Choosing the right trustee 

A special needs trust is only one part of the equation. The person or institution responsible for managing the trust can be equally important. 

The trustee oversees trust assets, follows the trust’s instructions and makes decisions regarding distributions. Depending on the trust’s provisions, the trustee may also be responsible for managing investments, maintaining records and helping ensure the trust operates as intended. 

Depending on the family’s goals, a trustee may be: 

• A trusted family member. 
• A professional trustee. 
• A corporate trustee. 
• A combination of individuals and professionals. 

The right choice often depends on the complexity of the situation, family dynamics and the level of ongoing support required. 

Parents frequently find comfort in knowing that someone they trust will be responsible for carrying out their wishes and helping safeguard their loved one’s financial future. 

Ensure your estate plan is coordinated 

Creating a special needs trust is often an important step, but it’s typically just one part of a broader estate planning strategy. 

Families should review their estate plan and beneficiary designations regularly to help ensure all parts work together to support their long-term goals. A well-coordinated plan can help avoid unintended consequences and provide clearer direction for loved ones in the future. 

Review your will 

A will should reflect your current wishes and coordinate with any trust arrangements. If a special needs trust is part of your plan, assets intended for your loved one’s benefit may need to pass to the trust rather than directly to the individual. 

It’s also important to review other provisions of your will, including who will serve in key roles and how assets will be distributed among family members. 

Review beneficiary designations 

Many assets transfer outside of a will through beneficiary designations. These can include: 

• Retirement accounts. 
• Life insurance policies. 
• Annuities. 
• Certain investment accounts. 

Beneficiary designations are especially important because these assets typically pass directly to the named beneficiary, regardless of what your will says. 

As a result, even if your will has been updated to reflect your special needs planning strategy, an outdated beneficiary designation could unintentionally direct assets to your loved one rather than to the trust. Reviewing these designations regularly can help ensure they align with the rest of your plan. 

How life insurance can support a special needs plan 

When families think about funding future care, life insurance is often part of the conversation. 

Life insurance can provide a source of funding when it is needed most. Rather than relying solely on existing savings or investment accounts, families may choose to use life insurance proceeds to support future care needs.  

In some situations, a special needs trust can be named as the beneficiary of a life insurance policy. This allows proceeds to flow directly into the trust, helping coordinate with the broader estate plan while preserving other assets for family members or additional planning goals. 

Because every family’s circumstances are different, it’s important to work with qualified professionals to evaluate the most appropriate approach. 

Don’t overlook a letter of intent 

Financial resources are only one part of a successful long-term care strategy. 

Families often possess years of knowledge about a loved one’s routines, preferences and daily needs that may never appear in legal documents. 

That’s why many caregivers create a letter of intent. This document can provide valuable guidance for future caregivers by outlining information such as: 

• Medical providers and therapists. 
• Daily routines. 
• Communication preferences. 
• Hobbies and interests. 
• Living arrangements. 
• Personal goals. 
• Important relationships. 

Although a letter of intent is generally not a legal document, it can help future caregivers better understand how to provide consistent support and maintain quality of life. 

Key steps to review in your special needs plan 

If you’re caring for a loved one with special needs, consider reviewing the following areas with your legal, tax and financial professionals: 

• Existing wills and trusts. 
• Beneficiary designations on retirement accounts and life insurance policies. 
• Current eligibility for government benefit programs. 
• Potential funding sources for future care. 
• Trustee and successor trustee selections. 
• Guardianship or caregiving arrangements, if applicable. 
• A letter of intent or care instructions. 

Even if you’ve completed estate planning documents in the past, major life events, changes in assets or changes in your loved one’s care needs may warrant a review. 

Planning today can help protect tomorrow 

One of the greatest gifts parents and caregivers can provide is a plan. 

A well-structured special needs strategy can help ensure that financial resources are available, trusted people are identified and important instructions are documented for the future. 

While every family’s situation is unique, key planning considerations often include establishing a special needs trust, reviewing beneficiary designations, updating estate planning documents, selecting appropriate trustees and documenting caregiving preferences.  

Taking the time to address these issues today may help create greater financial security, preserve access to important benefits and support a loved one’s quality of life for years to come. While no document can replace the care and advocacy you provide today, a thoughtful plan can help ensure that support continues when others step in on your behalf. 

Disclosures 

Representatives of Ameritas do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your specific situation.