Planning for a child with a disability

If you have a child with a disability, one of the biggest questions in your planning is what happens when you're no longer there. Wanting to leave them money is natural. But if your child receives Supplemental Security Income (SSI) or Medicaid, leaving it to them directly can backfire.

Why a direct gift can cause problems

SSI and Medicaid are means-tested: they're for people with very limited income and savings. In most cases, a person receiving SSI can't have more than $2,000 in countable savings. An inheritance, a life insurance payout or a retirement account left directly to your child could push them over that limit and end benefits they rely on, including health coverage that may be hard to replace.

The supplemental needs trust

A supplemental needs trust (also called a special needs trust) holds money for your child's benefit without counting as theirs. A trustee you choose uses it to pay for things that improve their life beyond what public benefits cover: therapies, equipment, education, travel, a phone, a computer, recreation.

When parents or grandparents set up and fund the trust with their own money, it's called a third-party trust. In most cases, what's left when your child dies can go to whomever you name, such as their siblings, rather than being paid back to Medicaid.

A few practical points:

• Name the trust, not your child, as the beneficiary on life insurance, retirement accounts and anything else that passes by beneficiary form. A will doesn't override those forms.
• Choose the trustee carefully. It might be a sibling, a trusted friend, a professional trustee or a nonprofit pooled trust. Many families name a backup as well.
• Retirement accounts left to a properly written trust for a disabled beneficiary can often be withdrawn over the beneficiary's lifetime rather than within 10 years. The drafting matters, so ask your attorney.

ABLE accounts

An ABLE account is a tax-advantaged savings account your child can own. Family and friends can contribute up to $19,000 a year in total, and the first $100,000 in the account doesn't count against SSI. Starting in 2026, people whose disability began before age 46, up from 26, can open one. An ABLE account is often a useful companion to a trust, because your child can use it more directly for everyday needs.

Social Security for an adult disabled since childhood

When a parent starts Social Security, becomes disabled or dies, an adult child whose disability began before age 22 may qualify for a benefit on that parent's record. It's often larger than SSI, and after two years it usually brings Medicare. It's worth asking Social Security about when you file for your own benefits.

Guardianship and alternatives

When your child turns 18, you're no longer automatically able to make decisions for them. Depending on their abilities, options range from powers of attorney and supported decision-making to guardianship. It's best to consider these before your child's 18th birthday.

A letter of intent

Many families also write a letter of intent: a plain description of your child's routines, health, preferences, friends and what makes them happy. It isn't a legal document, but it can be invaluable to whoever steps in.

This is general information, not legal advice. Benefit rules vary, and a special-needs or elder-law attorney can help you choose the right structure for your family.