Being a parent is a tough job – but being a parent to a child with special needs adds so many extra layers of responsibility – especially when it comes to financial security.

Weaving through the maze of government benefits is difficult enough, so planning for after you are gone may seem overwhelming. Of course, you want to leave money to your child to ensure he or she has a comfortable life after you’re gone, right? Well, here’s the catch: if your special needs child directly inherits money, it could do more harm than good.

 

The Inheritance Trap: Don’t Let Your Kids Fall in

Most children who have special needs rely on various government benefits to help with therapies, assistance, and medical care.

These programs, though, have strict income and asset limits—so if your child suddenly inherits money outright (and, by law, your child inherits your money the moment you die, so it is imperative that you plan ahead), they could lose their essential benefits.

Instead of helping, your well-intentioned inheritance could become a major problem. That’s why working with an experienced estate planning attorney to create a simple Special Needs Trust (SNT) is so important.

 

Third-Party Special Needs Trusts vs. First-Party Special Needs Trusts

There are two main types of Special Needs Trusts: Third-Party SNTs and First-Party SNTs. The difference is HUGE and knowing which one to use is crucial.

Third-Party Special Needs Trusts are Special Needs Trusts you, the third party, establish while you are alive, but the trust generally isn’t “activated” until you die, springing into action to ensure your child’s inheritance won’t affect their government benefits. Other people, such as grandparents and other family members, can name these trusts in their estate plan as well. The child can enjoy all the stability – and fun things – you want to provide, while also ensuring no disruption to their government benefits. But the biggest advantage? There’s NO Medicaid payback when the child beneficiary passes away. Whatever money remains after your child passes can go to other beneficiaries of your choosing. You can ONLY set up a Third-Party Special Needs Trust while you are living; once you die, it is too late.

First-Party Special Needs Trusts are trusts that are funded with a beneficiary’s own money, which, for example, would be the inheritance leave your child if you don’t plan well. The catch? After the beneficiary passes away, any remaining funds in a First-Party SNT must be used to reimburse the government. Essentially, the government gets first dibs on whatever is left. Even worse? During the time it takes for your child to set up a First-Party Special Needs Trust after your death, your child will be ineligible for their government benefits. This is because most of these benefits are income-based, and generally anything they have above $1,000-$2,000 will halt benefits.

I only work with parents to prepare Third-Party Special Needs Trusts.

 

ACT NOW: Why You Need a Third-Party Special Needs Trust

If you have a child with special needs, a Third-Party Special Needs Trust isn’t optional—it’s essential. The harsh reality is that if you don’t set up a Third-Party Special Needs Trust before you pass away, it’s too late. Your child inherits your property immediately, even if the child hasn’t technically “received it.” – there’s no “wiggle room” time period, where another family member could step in to set up a Third-Party Special Needs Trust for your child using your inheritance; at that point, a First-Party Special Needs Trust is the only option. And again, First Party SNTs come with the Medicaid payback requirement. But also, First-Party SNTs are also very expensive and time consuming to establish, requiring a specialized attorney, and they are complicated to administer over the years.

By planning ahead and setting up a simple Third-Party Special Needs Trust, you ensure that:

1) Your child keeps their government benefits,

2) The money you leave is used to enhance their quality of life, and

3) There’s no Medicaid claw back on remaining funds.

 

The Bottom Line

A Special Needs Trust isn’t just an estate planning tool—it’s a safeguard for your child’s future. If you have a child with special needs, don’t wait until it’s too late. A Third-Party Special Needs Trust is the best way to provide financial security while protecting their benefits.

Want to make sure your child is protected? Let’s talk about setting up a Special Needs Trust today!