What parents should know about Special Needs Trusts

From the moment your child is born, you can’t help but think about their future. No matter how big they get or how independent they become, the instinct to protect and provide stays with you for life. For parents of children with special needs, that sense of responsibility often runs even deeper. Your child’s care and well-being touch every part of family life, shaping daily routines, long-term decisions, and even how you think about your own retirement.

That enduring responsibility makes thoughtful planning essential. For many families, the challenge is finding ways to provide long-term financial support without putting critical public benefits at risk. Luckily, financial tools like Special Needs Trusts can help you plan with confidence and protect your child’s future while preserving the support they rely on. Here are some considerations to keep in mind about Special Needs Trusts.

The Special Needs Trust

A supplemental needs trust (often referred to as a Special Needs Trust) is one of the primary tools to provide for a child with a disability while protecting their ability to qualify for government benefits, such as Supplemental Security Income (SSI) and Medicaid. Such a trust is established to manage assets for a beneficiary, in this case a child with a disability. The assets are for the benefit of the child, but not owned by the child, and are usually beyond the reach of the parents’ or child’s creditors. Assets in the trust may be used to buy goods and services for the beneficiary.¹ This may include personal care attendants, home furnishings, vacations, physical rehabilitation, educational services, or out-of-pocket medical and dental expenditures not covered by other sources.²

Funding a Special Needs Trust

A Special Needs Trust may be funded in a number of ways including through an inheritance or from the proceeds of life insurance.³ Some financial advisors and lawyers recommend not funding it until the death of both parents. Trusts can also be funded by cash gifts or investments, such as retirement fund proceeds or individual retirement accounts (IRAs), if the IRA custodian allows it. Funding can also be obtained through specific instructions left in a will, where parents or guardians can ensure their assets are left to the trust and not directly to the child. If you have a revocable living trust, it can also include necessary provisions to create a Special Needs Trust.

Regardless of the source of the funds, it’s important to name the trust as the recipient for the benefit of the child. Well-intentioned family members may want to help by leaving money directly to the child, but this could be a potentially costly mistake, as those good intentions may disqualify your child from various benefits and governmental assistance.

Thinking ahead is critical

Ongoing medical and technological advances are improving the lives and life expectancies of children with disabilities. This makes it ever more critical for parents to think about the future. However, establishing a Special Needs Trust and drafting the accompanying will is a complicated undertaking. It’s not advisable to treat it like a do-it-yourself project. If you‘re the parent of a child with special needs, consider working with a lawyer and a financial advisor familiar with the appropriate laws and resources, which vary from state to state.

No matter when and how you plan your retirement, you may feel more confident knowing plans are in place for your child with a disability.