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Planning For The Financial Independence
and Security of A Disabled Child

As an elder law attorney, I am often asked by a parent of a disabled child “How can I provide for my child’s financial needs when I am no longer alive?” People are concerned that, by leaving an inheritance directly to their disabled child, this will usually disqualify the child from most means tested public assistance programs. If the parents make an outright gift to another sibling can they be assured that this child will properly look after the disabled child? 

The solution to the problem is to create a trust known as a “supplemental needs trust” for the benefit of the disabled child. The purpose of the trust is to preserve eligibility for public assistance programs, such as Supplemental Security Income (SSI). In most states, eligibility for SSI automatically creates eligibility for Medicaid, which may be the only health insurance the disabled child is able to receive. In addition to maintaining public assistance eligibility, assets held in the supplement needs trust may be used to substantially improve the disabled child’s quality of life by providing goods and services above those provided by federal and state agencies.

There are two main types of trusts. The third party "supplemental needs trust" and the self-settled "special needs trust." The third party supplemental needs trust is a trust which is usually created with the assets of a parent or grandparent for the benefit of the disabled child. The trust may be created while the parent is alive or at death through a testamentary trust under the parent’s will or revocable trust. As long as the child cannot revoke the trust or compel distributions, assets held in the trust will not be considered an available resource and will not disqualify the child from receiving public assistance.

During the child’s lifetime, depending on the laws of your particular state, the trustees may be granted broad discretionary authority to use trust assets to purchase goods and services not otherwise available from governmental programs. These may include supplemental medical, dental, diagnostic work and treatment, nursing and attendant care, travel and entertainment, supplemental housing, support and transportation. In drafting the trust, the attorney will have to take into consideration both federal and state law. In some states the mere existence of the trustee’s ability to use trust assets to provide food, clothing or shelter will disqualify the child from receiving public benefits. However, in other states direct payments to third parties for food, clothing or shelter known as "in-kind support and maintenance" will only cause a reduction in the disabled child’s SSI for the month.

Upon the death of the disabled child, assets held in the third party supplemental needs trust may pass to other family members and the trust is not required to reimburse the state for public assistance furnished to the disabled child under the state’s Medicaid program.

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