How to Include a Special Needs Trust in Your Estate Plan

Estate planning is about more than passing down assets—it’s about protecting the people you love. For families who have a child or dependent with disabilities, this means navigating a complex intersection of inheritance, government benefits, and long-term care. Without careful planning, even a well-meaning gift can jeopardize essential benefits, such as Supplemental Security Income (SSI) or Medicaid.

That’s where a special needs trust lawyer becomes a critical part of the estate planning process.

This blog explains how to include a special needs trust in your estate plan, why it matters, and the common mistakes families should avoid.

What Is a Special Needs Trust?

A special needs trust (SNT) is a legal tool that enables a person with a disability to receive financial support without jeopardizing their eligibility for means-tested public benefits, such as SSI or Medicaid. Instead of giving assets directly to the individual, funds are held in a trust and managed by a trustee. The money can be used for supplemental needs—things that improve quality of life but aren’t covered by government programs.

These might include:

• Assistive technology

• Transportation

• Personal care aides

• Educational expenses

• Vacations or entertainment

• Home modifications

Because the funds are not considered "available resources" under federal benefit rules, the trust preserves access to critical services.

Why a Special Needs Trust Is Essential in Estate Planning

Families often assume that a traditional will or trust will suffice. But if an individual with special needs receives a direct inheritance, that windfall could make them ineligible for benefits. Even a modest amount—over $2,000 in countable assets—can trigger disqualification.

A special needs trust lawyer helps families avoid this outcome by structuring the estate plan to provide long-term support without financial disruption. When implemented correctly, this type of trust enables a lifetime of care, independence, and dignity.

Types of Special Needs Trusts

There are several types of SNTs. Including the correct one in your estate plan depends on who is funding it and what assets are involved.

First-Party Special Needs Trust

• Funded with the beneficiary’s assets (e.g., a legal settlement or inheritance received directly).

• Must be created before the beneficiary turns 65.

• Medicaid payback provision required after the beneficiary’s death.

Third-Party Special Needs Trust

• Funded by parents, grandparents, or other loved ones.

• No payback requirement to Medicaid after the beneficiary passes.

• Commonly used in estate plans and life insurance planning.

Pooled Trust

• Managed by nonprofit organizations.

• Assets from multiple beneficiaries are pooled for investment purposes.

• Can be a solution when a family does not have someone to serve as trustee.

A special needs trust lawyer can evaluate which type is most appropriate and ensure it complies with both state and federal regulations.

Steps to Include a Special Needs Trust in Your Estate Plan

1. Identify the Need

The first step is understanding whether a family member qualifies as a person with a disability under federal guidelines. Even individuals with mild or moderate disabilities may be eligible for benefits that require asset protection.

This step may involve:

• Medical documentation

• Functional assessments

• Review of government benefits

2. Work With a Special Needs Trust Lawyer

Estate planning for a person with disabilities requires specialized knowledge. Not all attorneys understand the nuances of public benefits law, trust structure, or trustee obligations. A special needs trust lawyer ensures the trust is legally sound and tailored to the individual’s long-term needs.

The lawyer will help:

• Choose the right type of trust

• Draft language that protects eligibility

• Appoint a qualified trustee

• Coordinate with other estate planning documents

3. Update Your Will or Revocable Living Trust

Once the special needs trust is created, your will or living trust must be updated to direct assets to the trust, rather than to the beneficiary directly. This may involve naming the trust as the recipient of:

• Real estate

• Financial accounts

• Life insurance policies

• Retirement assets (in some cases)

Failing to make this adjustment is a common mistake that can undo the entire purpose of the SNT.

4. Coordinate Life Insurance and Retirement Accounts

Special needs trusts are often funded with life insurance policies because they provide a guaranteed source of resources for future care. A special needs trust lawyer can ensure the trust is named as the policy’s beneficiary—rather than the child or disabled adult directly.

With retirement accounts, coordination is more complex. Passing qualified funds to a special needs trust may trigger tax consequences or distribution rules. Professional legal guidance is essential here.

5. Name the Right Trustee

The trustee plays a critical role—they must manage the trust prudently, make distributions in the beneficiary’s best interest, and ensure compliance with benefits rules. Parents often want to name a family member, but it’s essential to choose someone who:

• Understands financial management

• Has no conflict of interest

• Will act objectively

• Can work with legal and tax professionals

Some families appoint a professional trustee or corporate fiduciary for this reason. Others name a family member as co-trustee alongside a professional.

6. Create a Letter of Intent

Although not legally binding, a letter of intent serves as a valuable companion to the special needs trust. It provides future trustees with:

• Personal details about the beneficiary

• Daily routines

• Medical history

• Likes, dislikes, and goals

• Instructions for care and lifestyle preferences

A special needs trust lawyer often assists in drafting or reviewing this document to ensure it complements the legal framework.

7. Review and Revise Periodically

Life changes—and so do laws. Reviewing your estate plan every few years ensures that:

• The trust still reflects the beneficiary’s needs

• The trustee is still available and appropriate

• Your will, insurance policies, and accounts are up to date

• State and federal laws are still being followed

Regular check-ins with a special needs trust lawyer ensure long-term protection and stability.

Common Mistakes to Avoid

Including a special needs trust in your estate plan only works if it’s done correctly. Mistakes can result in costly and irreversible consequences.

Top errors include:

• Leaving assets directly to the beneficiary

• Naming the wrong type of trust

• Choosing an unqualified trustee

• Failing to fund the trust or update asset designations

• Using generic trust language not tailored to public benefits law

These mistakes often occur when families attempt to use online templates or general estate planning tools that are not specifically designed for special needs planning.

The Role of a Special Needs Trust Lawyer

A special needs trust lawyer is not just a document drafter—they’re a long-term advisor. Their role includes:

• Educating families about benefits and eligibility

• Ensuring compliance with federal and state rules

• Structuring the trust to maximize quality of life

• Helping trustees fulfill their legal duties

• Updating documents as needs and laws evolve

Their involvement ensures the trust serves its purpose: safeguarding financial resources while protecting access to essential benefits.

Key Takeaways

• A special needs trust enables individuals with disabilities to receive financial support without jeopardizing their government benefits.

• Including a special needs trust in your estate plan requires specialized legal knowledge, careful asset coordination, and effective trustee planning.

• Mistakes—like naming a disabled child as a direct beneficiary—can have devastating consequences.

• A special needs trust lawyer provides the legal experience and strategic insight needed to protect your loved one’s future.

Frequently Asked Questions

Can I set up a special needs trust on my own?

Technically, yes—but it is not recommended. The legal and financial rules are complex, and a small error can disqualify a loved one from receiving benefits. A special needs trust lawyer ensures the trust is properly structured and compliant.

What happens to the money in the trust when the beneficiary passes away?

It depends on the type of trust. A first-party trust must repay Medicaid for services provided. A third-party trust typically names remainder beneficiaries, such as siblings or charities.

Can multiple people contribute to the same trust?

Yes. Family members like grandparents or aunts/uncles can contribute to a properly structured third-party special needs trust. This allows the trust to grow over time.