Special Needs Planning
Providing for a family member with a disability requires careful planning. Done right, the resources you leave behind enhance their life without disqualifying them from the government benefits they depend on.
The Problem With Leaving Money Directly
If you leave assets outright to a person with a disability who receives Supplemental Security Income (SSI) or MassHealth (Medicaid), those assets can make them ineligible for benefits they count on. Programs like SSI and Medicaid have strict asset limits, often as low as $2,000, and an inheritance that pushes someone over those limits can cause a loss of benefits that are far more valuable than the inheritance itself.
The solution is not to disinherit that family member. The solution is a Special Needs Trust.
What a Special Needs Trust Does
A properly drafted Special Needs Trust, also called a Supplemental Needs Trust, holds assets for the benefit of a person with a disability without those assets being counted as the beneficiary's own resources. The trust pays for things that government benefits do not cover: education, recreation, travel, technology, personal care items, and other quality-of-life expenses. The beneficiary keeps their government benefits intact.
There are two main types of Special Needs Trusts:
Third-Party Special Needs Trust. Funded with assets that belong to someone other than the beneficiary, typically parents, grandparents, or siblings. This is the most common type and the most flexible. It can be created as a standalone trust or as a share within a larger family trust. When the beneficiary passes away, remaining assets can go to other heirs rather than to the government.
First-Party (Self-Settled) Special Needs Trust. Funded with assets that belong to the person with a disability, for example a personal injury settlement or an unexpected inheritance received without proper planning. First-party trusts must include a Medicaid payback provision, meaning the state may recover costs upon the beneficiary's death. These trusts must be established before age 65.
One of the most common and costly mistakes in estate planning is leaving assets directly to a sibling or relative to "take care of" the family member with a disability informally. This informal arrangement offers no legal protection, has gift and estate tax consequences, and can be lost to the well-meaning relative's own divorce, lawsuit, or creditors.
ABLE Accounts
Massachusetts participates in the ABLE Act program, which allows individuals with disabilities that began before age 26 to save money in a tax-advantaged account without affecting their SSI or Medicaid eligibility, up to the annual contribution limit. ABLE accounts are simpler than trusts and can be a useful complement to a Special Needs Trust, particularly for smaller amounts. We explain when ABLE accounts make sense and how to use them alongside a trust.
Planning for the Future
Special needs planning also involves thinking about who will manage the trust after you are gone, what the beneficiary's life should look like, and how to communicate your wishes to future trustees. We work through all of this with you, including the Letter of Intent, a non-legal document that tells future caregivers and trustees everything they need to know about your loved one's preferences, routines, and needs.