Estate Planning for Special Needs Adults and Children

Estate planning for special needs adults and children involves specific considerations that go beyond traditional wealth distribution. These can also include medical care, financial support and guardianship. One challenge is to preserve eligibility for government benefits. And creating a special needs trust, which is a personalized financial strategy, is a common solution. Working with a financial advisor can also help you create a personalized estate plan for your family’s needs.

Government Benefits for Special Needs Adults and Children

Estate planning for special needs adults and children involves creating legal and financial strategies to take care of their long-term care and financial security without jeopardizing their eligibility for government benefits.

One common mistake to avoid: You can forfeit eligibility for government benefits by unintentionally providing direct financial assets to special needs individuals, thereby exceeding asset limits and disqualifying them from programs like Medicaid or Supplemental Security Income (SSI). These are two government benefits designed to support individuals with disabilities, including special needs adults and children.

SSI is a federal program that provides monthly financial assistance to individuals who have limited income and resources. To qualify for SSI, the person must have a disability that significantly limits their ability to perform basic work activities and is expected to last at least one year or result in death.

Additionally, eligibility is limited by the value of your countable resources, which include cash and other assets that can be converted into cash like stocks, bank accounts and property, among others. For 2024, your countable resources must be less than $2,000 for individuals and $3,000 for couples.

You should note that the Social Security Administration will not count certain things as part of your resource limit. These include the home that you live in and the land that it’s located on, one vehicle that you use for transportation, household goods and personal effects, burial funds and plots, among other resources.

While some things that you own are excluded as resources, SSI does count parents’ income and resources in the eligibility process until the child turns 18. At that point, only the individual’s financial situation is evaluated.

Special needs adults and children can also receive benefits from Medicaid, which provides health coverage and long-term care services. In order to qualify for Medicaid in your state, you will generally need to make less than between 100% and 200% of the federal poverty level.

They may also qualify for Medicare Part A and Part B if they have a qualifying disability and have been receiving Social Security Disability Insurance (SSDI) for at least 24 months.

What Is a Special Needs Trust?

A mother thinks about creating a special needs trust for her child.

A special needs trust (SNT) is a legal arrangement that can help preserve government benefits for individuals with disabilities by allowing assets to be held for them without affecting their eligibility for programs like Medicaid or Supplemental Security Income (SSI).

SNTs are used to provide for additional needs that government benefits may not cover, such as medical care, educational opportunities and personal care services. The funds in the trust can be used for various purposes, including medical treatments, rehabilitation, education and entertainment, all while ensuring that the beneficiary remains eligible for essential public assistance.

There are three primary types of SNTs:

First-Party Special Needs Trust

Funded with the assets of the individual with special needs, typically through inheritance, personal injury settlements, or savings.
These trusts must include a payback provision, meaning any remaining funds at the beneficiary’s death must be used to reimburse the state for Medicaid benefits received.

Third-Party Special Needs Trust

Established by parents, grandparents, or other third parties using their assets.
This type of trust does not have a payback requirement, and any remaining funds after the beneficiary’s death can be distributed to other family members or heirs.

Pooled Special Needs Trust

Managed by a nonprofit organization, this trust pools the resources of many beneficiaries while maintaining separate accounts for each individual.
This option can be more affordable and accessible for families with limited assets.

Guardianship and Conservatorship

Estate planning for special needs adults and children often involves guardianships and conservatorships to provide legal and financial protections. Here’s a closer look at both:

Guardianships

are established to manage the personal and medical decisions for an individual who cannot do so independently
designate a guardian, usually a family member or a trusted individual, responsible for the well-being of the special needs person
allow the guardian to make decisions about healthcare, living arrangements, education and other personal matters

Conservatorships

focus on financial management
appoint a conservator to handle the financial affairs and assets of the special needs individual
the conservator, often but not always a family member, manages income, pays bills, budgets and makes financial decisions to ensure the individual’s financial stability

Both guardianships and conservatorships can be tailored to the specific needs of the individual. Limited guardianships allow the person to retain some decision-making abilities, promoting autonomy where possible. Similarly, conservatorships can be structured to provide varying levels of financial oversight, depending on the individual’s capabilities.

Establishing these legal frameworks involves court proceedings where evidence of the individual’s needs and abilities is presented. The court assesses the situation and appoints suitable guardians or conservators. It’s also essential to plan for the succession of these roles, ensuring continuity of care and financial management.

What Is an ABLE Account?

An ABLE account, or Achieving a Better Life Experience account, is a tax-advantaged savings account specifically designed for individuals with disabilities. Established under the ABLE Act of 2014, these accounts allow eligible individuals and their families to save for disability-related expenses without jeopardizing eligibility for federal benefits like Supplemental Security Income (SSI) and Medicaid.

Contributions to an ABLE account can be made by the account holder, family members, friends, or other entities, but they are not tax-deductible. However, the earnings on the investments in the account grow tax-free. The funds in an ABLE account can be used for a wide range of qualified disability expenses, including education, housing, transportation, employment training, assistive technology and healthcare costs.

To qualify for an ABLE account, the individual must have a significant disability that began before the age of 26. Each eligible individual can only have one ABLE account, and there are annual contribution limits, which are subject to change based on inflation adjustments. For 2024, contributions may not exceed the annual gift tax exemption of $18,000.

Bottom Line

A guardian takes care of a special needs child.

Estate planning for special needs adults and children is an important process that addresses their specific requirements, which can include medical care, financial support and guardianship. This strategy aims to preserve long-term care and financial security.

Estate Planning Tips

If you have dependents, estate planning is particularly essential. Here’s a checklist of five general things you may need to do now to create a comprehensive estate plan for your family.
A financial advisor can also help you create an estate plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.