Leaving Money to a Loved One With Special Needs Without Costing Them SSI or Medicaid

Parents of a child with a disability tend to plan for one thing above all else: what happens after they're gone. The instinct is to leave everything to that child, outright, so there's no question about being provided for. In many cases that's exactly the wrong move. Programs like Supplemental Security Income (SSI) and Medicaid are need-based, and money that lands directly in the beneficiary's hands can put those benefits at risk. This article explains the tools Florida families use to avoid that, and the one distinction in them that matters most.

Why a direct inheritance can backfire

SSI and Medicaid are designed for people with very limited resources, and the programs look at what a person owns. An inheritance, a life insurance payout or a bank account in the beneficiary's own name can count against them. Receiving it can mean losing monthly income, health coverage, or both, sometimes for a long stretch, and often at the moment the family is least able to sort it out.

The same problem shows up in smaller ways. A grandparent who writes a modest bequest into a will, or a relative who is named as beneficiary on a retirement account, can set it off without anyone intending to. Special needs planning is largely about closing those doors before they open, and about making sure the plan works alongside the benefits your loved one already depends on, not against them.

Support trusts and special needs trusts: two different tools

Families often hear both terms and assume they mean the same thing. They don't. A support trust generally directs the trustee to pay for the beneficiary's support. That sounds protective, but because the trustee is required to provide for the person, a benefits agency may treat the trust's money as available to them, which can threaten eligibility.

A special needs trust works differently. The trustee has discretion over what to spend and when, and the money is meant to supplement what public benefits provide rather than replace them. Because the beneficiary can't demand payments or direct the funds, the trust is generally not counted as the beneficiary's own resource. Which type fits depends on who is funding it, how much is involved, and what your loved one's needs are likely to be.

Third-party versus self-settled: where payback comes in

The other distinction that matters is whose money goes into the trust.

• Third-party trust: funded with money that belongs to someone other than the beneficiary, such as a parent, grandparent or sibling. Because the funds were never the beneficiary's, these trusts generally don't have to repay the state when the beneficiary dies, and what remains can pass to the family members you name.
• Self-settled trust: funded with the beneficiary's own money, for example a personal injury settlement or an inheritance that was left to them outright by mistake. These trusts come with a payback requirement: when the beneficiary dies, the state is repaid, to the extent public benefits were received, before anyone else sees what's left.

For parents, that points to an obvious practical rule. Money you want your child to have should flow into a third-party trust, and anyone else who wants to leave your child something (grandparents, aunts, uncles) should be pointed to that trust rather than naming your child directly. One outright gift from a well-meaning relative can create a self-settled problem that a third-party trust was designed to prevent.

What the trust can pay for, and where it needs care

A well-run special needs trust pays for the things benefits don't cover: therapies and equipment that fall outside coverage, education, a computer, a vacation with a caregiver, hobbies, a better wheelchair van. These are the things that make daily life fuller and are exactly what the trust exists for.

It also takes care. Certain payments, especially those that cover housing and food, can reduce monthly SSI benefits, so a trustee needs to understand the rules before writing checks. That's a good reason to choose a trustee carefully, to write clear guidance into the document, and to name a successor trustee. A loving relative with no experience in public benefits can make a costly mistake with good intentions.

The rest of the plan around the trust

The trust is one piece of a larger plan. Your will can nominate guardians for any minor children and direct assets into the trust. Beneficiary designations on life insurance and retirement accounts should name the trust, not the person with a disability, so the money flows where you intended. A durable power of attorney and health care directives cover the years while you're alive but unable to act. And a written description of your loved one's routines, doctors, medications and preferences gives a future caregiver something no legal document does.

Edmund Gegan, the firm's founding attorney, spent about three years as a foster parent and remains active supporting foster-care organizations. Families come to special needs planning with a lot of love and a lot of worry, and he understands why the paperwork feels heavy.

If you're planning for a child or relative with special needs, Gegan Law Office can walk through your situation with you. Call (813) 248-8900 to schedule a free initial consultation. This article is general information, not legal advice about your family's circumstances.