Estate planning for children with disabilities often requires more than traditional financial planning. These plans must account for long-term care, access to public benefits, and ongoing support tailored to each child’s unique circumstances. Many parents choose a supplemental or disability-focused trust to provide ongoing support without affecting eligibility for Medicaid or SSI. These trusts let the child receive assets—like gifts, inheritances, or settlements—without losing access to essential benefits.
There are three main types of disability-focused trusts:
First-Party Trust
The trust funds support the beneficiary throughout their lifetime. After they pass away, any remaining assets go toward reimbursing the government for medical care costs. These trusts are useful for beneficiaries who are receiving Medicaid SSI or other government benefits and who come into large amounts of money such as an inheritance or a lawsuit settlement. The trust allows the beneficiary to retain their benefits while still being able to use their own assets when necessary.
Third-Party Trust
A third-party trust is typically set up by parents or relatives who want to support a loved one with a disability. Like a first-party trust, it preserves the beneficiary’s eligibility for government benefits. However, it doesn’t include the payback requirement found in a first-party trust. When the beneficiary passes away, any remaining funds can go to other family members or to a charity—without needing to reimburse the government.
Pooled Trust
A charity essentially sets up a pooled trust that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes while still maintaining separate accounts for each beneficiary’s needs. When the beneficiary passes away, the funds remaining in the account reimburse the government for care but a portion also goes towards the nonprofit organization responsible for managing the trust.
Adding Life Insurance to Your Estate Plan for a Child with Disabilities
In addition to setting up a trust, it’s also advisable to consider a second-to-die life insurance policy. This type of policy pays out only after the second parent dies and typically offers lower premiums than individual plans. For families doing estate planning for children with disabilities, life insurance can provide long-term funding for a trust without going through probate or incurring estate tax. Be sure to name the trust—not the child—as the beneficiary. This approach helps preserve the overall estate while securing resources for future care
ABLE Accounts in Estate Planning for Children with Disabilities
Finally, consider setting up an ABLE account. ABLE stands for Achieving a Better Life Experience. Congress created these accounts in 2014. Modeled after 529 plans for college savings, ABLE accounts let people with disabilities save up to $15,000 per year tax-free. These savings don’t affect eligibility for government benefits. To qualify the person with disabilities must have become disabled before his or her 26th birthday. There are many limitations and regulations with these accounts so discuss it thoroughly with your estate planning attorney to make sure it fits in with the comprehensive plan.
For guidance with estate planning for children with disabilities, contact our estate planning attorneys to discuss the right approach for your family. We have offices in Cary, Clayton, Raleigh, and Wake Forest to support you.
