Estate Planning Traps Impacting Beneficiaries with Special Needs

#activitiesofdailyliving #beneficiary #caregivingbasics #disability #estateplanningbooks #guides #medicaid #specialneeds #specialneedsestateplanning Jan 09, 2023

When it comes to estate planning for a beneficiary with special needs, there is no margin for error. This is true not only in terms of making sure that they are protected from themselves or outside influences who may push them to recklessly spend money but also to prevent the loss of valuable life-enhancing public benefit programs like Medicaid or Disability by "having too much money."

In one case, a client's child's medication alone would have been several thousand dollars a month if they were ever kicked off Medicaid, and they could not afford to let that happen. With stakes like this, it is no wonder parents want to get things right. In this outtake from my book The Simple Guide to Special Needs Estate Planning (available on Amazon by clicking here), I review the problems inherent in this field of planning that is littered with traps that can cost your beneficiary everything. For more information, check out the FREE webinar at


Chapter One: The Problems

“I just don’t know what to do,” Curtis told me. “My wife was diagnosed with cancer, and we knew we had to stop putting off the planning. Jeremy can’t handle any kind of inheritance, but I know he’ll need more money than he could ever earn on his own just to get by. It took us months to get him qualified for disability and health benefits through the state, and now he can’t really save any money. On top of everything, my wife is too sick from the chemo to help me figure this out. All I know is that people have been telling me to see you to get a special needs trust put together, but I don’t know where to start. What do we need to do?”

I generally have two kinds of initial meetings with clients who have special needs children and need to get planning done. The first is more of an interview of me by clients who have done their homework, want to make sure I am the attorney to help, and then get some confusing points in their research clarified. The second kind of initial meetings are far more emotional, and this is what Curtis was going through. As is often the case in parents of children with autism or other special needs children, Curtis was overworked, confused, and, above all, feeling helpless. He wants to protect his son. He’s dealing with his wife’s cancer. He doesn’t know where to start.

“Curtis, I understand how frustrating this can sound,” I told him. “People don’t want to talk about what happens when they’re no longer here in the first place, let alone in how to plan for a special needs child. You already applied for Medicaid health and other benefits for Jeremy, right?”

Curtis nodded yes.

“Then it’s a matter of just doing estate planning for you and your wife to make sure you don’t mess that up and also to make sure that Jeremy has the funds he needs to live,” I said, leaning forward and beginning to sketch a few things out on a note pad. “The plan isn’t all that complicated, but it needs to be done right. Here’s what we can do…”


Having a child with special needs, regardless of the child’s age, weighs heavily on a parent. Emotionally, physically, and financially, but mostly emotionally. The great commitment in time from day to day often leads to planning for life only a few days at a time. While there is little relief from the emotional and physical drain, there are government programs that provide financial relief, but they are often predicated on the child having little or no assets in their own name.

There are different programs for different needs, the rules are constantly changing, and the rules for federal programs can vary from state to state. North Carolina’s Medicaid program changes so frequently that there is no printed handbook for navigating the system; there is only a comprehensive online compendium of rules that are subject to change from day to day. Because of this, I will not even attempt to spell out the rules here. As soon as the book goes to print, half of the rules for qualifying for special needs assistance could be outdated.

Some of the benefits these programs provide include adult, group housing for special needs beneficiaries. Healthcare is also a big item often included. Job training and life skills support may be available. It seems that if there is a need (as opposed to a desire) that there is probably a program that addresses those needs. However, certain programs in certain states define benefits very differently, and qualification will also vary from state to state.

But this book isn’t about qualifying for any particular government plan but for ensuring that an inheritance won’t mess things up. There are some very specific inheritance principles that when violated will cause major problems for the special needs beneficiary… or at least for their finances. These are items that will (hopefully) remain consistent for years to come, and staying far away from gray areas helps greatly in creating an inheritance. However, there can be no guarantees because we do not know what Congress will do today, tomorrow, or in the years to come.

To be sure, please talk to an experienced life and estate planning attorney who has access to the best documents available in planning for special needs beneficiaries. For more information or a referral, please see contact my law firm at 919-844-7993. For now, here are the biggest problems that result from poor inheritance planning.

Disqualification for Direct Inheritance

Parents of special needs children are probably more aware than anyone else, including attorneys, of program rules that mandate little or no cash be given to or maintained by the beneficiary. If in any given month the beneficiary has more than a certain level of cash or other liquid assets, then they are disqualified from receiving assistance. (Liquid assets are generally defined as cash, stocks, bonds, and other securities.) So leaving a cash inheritance of any kind to a special needs beneficiary runs the risk that they will be “over” their limit in the month it is given to them. And trying to get a direct cash inheritance in under the limit is also futile because you never know what the beneficiary will have or even earn in any given month.

While most programs do not disqualify a special needs beneficiary from continuing to receive benefits when they inherit personal property, there is no need to take chances. Personal property is generally identified as clothing, furniture, art, and jewelry. You can imagine that a program providing medical care to special needs beneficiaries may eventually start to put a firm dollar limit on the amount of jewelry that a program member can inherit or own at any given time. It may only be a matter of time before much stricter limits are placed on the amount of personal property that may be owned by a special needs beneficiary.



The biggest consequence of having “too much” money or assets will be disqualification from receiving program assistance. At least until all of the money has been used up. This is typically called a “spend-down” because that is exactly what must happen to the assets before the government program benefits are turned back on… all of the money must be spent down to a pre-determined level.

What this means in practical terms is that the beneficiary must use the inherited money to pay for the things the programs would have covered anyway, and any additional improvement in quality of life must be enjoyed quickly before the money is gone. Once all or most of those assets are gone, you can reapply for the program (which is enough of a headache to do once, let alone a second time.)

This is probably as good a place as any to reference a popular opinion by people who are not parents of special needs children. Some people believe that everyone should support themselves, and if they cannot, then their family members should provide the support without assistance from the government. They are entitled to their opinion, but that is not what Medicaid and other assistance programs are. They are insurance programs that are paid for through your tax dollars, and if an individual or their child needs assistance, then they should not feel bad about using it. If you paid life insurance premiums for decades and then you passed away, should your family feel bad about filing a claim for the insurance money? Of course not. And neither should you or your family feel you are “cheating the system” because you are working within the law to provide a better quality of life for a loved one through good inheritance planning.


Re-Application for Programs

There are many programs classified as “entitlement” programs, meaning if a person meets the medical and other financial criteria then they are automatically entitled to receive the benefits of the particular program. However, there is a growing trend in newer programs that only allow for a certain number of “slots” or people in a specific area who can receive those particular benefits. There is often a waiting list to get on these programs, and if a recipient of an inheritance is booted off the program because their assets are suddenly too high, then it is likely they will have to reapply for the program and go to the back of the line.

And so a direct inheritance can not only cause a spend-down, but it can also cause the beneficiary to go without benefits they had before because they may never get to the front of the line again.



There are problems that must be avoided in special needs estate planning, but there are some simple ways to avoid these inheritance mistakes. At least the solutions are simple if you start with the right attorney and the right documents. But before going into the solutions, let’s address what the actual goals of special needs planning. By taking a look at what is actually needed, we can see that nothing actually has to come under the special needs beneficiary’s direct control.

 For more information, check out the book The Simple Guide to Special Needs Estate Planning by clicking here, or sign up for the FREE webinar at

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