How to Plan For a Disabled Heir

In the United States, if a disabled person receives an inheritance, that inheritance may hurt rather than help by disqualifying the beneficiary from all needs-based government benefits including Medicaid, Supplemental Security Income (SSI) and other important programs. Special Needs Trusts and other planning devices can help disabled Americans retain their eligibility while still getting the full benefit of their inheritance.


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    Think about how you want to divide the "empire" when you die. If you wish to provide for a disabled child or other heir, no matter the amount, incorporate "special needs language" into your estate plan.
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    The law of all 50 states allows for the use of "Special Needs Trusts." Special Needs Trusts are drafted such that the government is not permitted to count the assets in the trust against the beneficiary's eligibility for needs-based government benefits.
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    Obtain a special needs trust that is drafted for your particular goals and circumstances. Understand that a special needs trust is not a form that would be the same for every person. A special needs trust may be customized to your wishes and should take into account the types of public benefits, the age of the beneficiary and other factors. A good lawyer who specializes in the area will be able to ask the right questions of you.
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    Do not have the trust provide for a "pay-back" to the government. A common drafting mistake by less experienced attorneys is to require that the government be repaid for all medical payments made on behalf of the beneficiary after the beneficiary dies. This confusion is caused by the fact that other types of special needs trusts (ones created with the assets of the disabled person instead of your assets) require a "pay-back" to the state.
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    Understand the restrictions of special needs trusts. A properly-drafted special needs trust will restrict the Trustee's ability to distribute the funds. The money in the trust cannot be used to pay for things or services already covered by the beneficiary's government benefits. This is normally a very acceptable restriction because we would not want the money to be used for something that is already being provided.
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    Choose the right Trustee. The Trustee of the special needs trust is the person or trust company responsible for administering the trust and carrying out your wishes. Legally this can be almost anybody but it is obviously important to choose wisely. Trust companies have an advantage because if they mess up, the beneficiary has someone to hold accountable for his or her loss of health insurance or other vital benefits. Only choose a trust company experienced with special needs trust administration. A family member, attorney or friend may also serve as Trustee and this is sometimes more cost-effective than using a trust company in smaller trusts. No matter who is serving as Trustee, the Trustee should be empowered and willing to call upon other experts when its own knowledge is lacking.
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    Choose from a Testamentary Special Needs Trust, Revocable Special Needs Trust or Irrevocable Special Needs Trust. Each has different pros and cons. A testamentary special needs trust pops out of a Will when you die. A revocable special needs trust (sometimes called a "living special needs trust") is a trust agreement that goes into effect right away as an estate/incapacity planning tool for you. An irrevocable special needs trust is a separate legal entity which may come with tax advantages. Talk to your lawyer about which type of trust is right for you.


  • Call more than one Elder Law Attorney and talk to them before going in for an appointment. Listen carefully to how the attorney talks to you. Is this someone who has a comfortable teaching style with whom you can relate?
  • Talk about fees before hiring any lawyer.
  • The best lawyers are those who are respected by their own peers. Find out who has been in leadership positions with their state bar association. Who lectures and teaches the other lawyers about Special Needs Planning? This is the one you want even if it means paying more.
  • Do not rely on free forms or advice from friends "at the pool." You get what you pay for and there is far too much at risk.
  • Search for information on the Internet by typing in your state's name and the words "Special Needs Trusts".
  • Make sure your trust contemplates whether and how the Trustee will be compensated.
  • Make sure your trust "fits in" with your broader estate plan. For example, make sure to speak with the lawyer about the other people for whom you wish to provide.
  • Fill out a dummy tax return for the trust you may create. Tax rates for trusts are exorbitant; moreover trusts are allowed virtually nothing in the way of deductions and exemptions. If you are leaving a very large income producing estate, it may be that the federal taxes which the trust will have to pay each year will actually outstrip the amount of state aid your disabled heir will be eligible for, meaning that your money will be depleted much more quickly than you anticipate.


  • Nothing in this article should be taken as legal advice for a particular person or issue. Laws change from time to time and vary from state to state. So many variables affect a lawyer's advice and these variables may well mean that the above planning steps will not affect you or could even cause harm. Prior to implementing any of the strategies discussed in this article, you should consult with an attorney who is certified as a specialist in Elder Law by your state's bar association or, if that state has no such certification, by the National Elder Law Foundation. Attorneys who understand special needs trusts and planning for disabled heirs are usually found in the Elder Law field even though age is not an issue. The selection of an attorney is an important decision that should be based on qualifications and expertise and certainly not on advertisements alone.

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Categories: Managing Your Money