“Public benefits are HARD to get and EASY to lose,” says Brianna Davidson Jarrett, Maryland Assistant Attorney General and mother of a child with disabilities. “If there is any possibility my child will be qualifying financially for benefits while I’m alive or after I’m dead, I would move heaven and earth before they lose those benefits.”
Public benefits programs such as Supplemental Security Income (SSI) and Medicaid often come with strict asset limits, which can put parents of kids with disabilities in a bind when thinking about estate planning. We want to make sure there’s enough money to pay for our children’s medical care and living expenses when we’re no longer around, but how do we make that money available for our kids without jeopardizing their eligibility for benefits programs?
Enter ABLE accounts and special needs trusts, two different tools that are designed to allow families to save money for our children’s future while also making sure they remain eligible for social services as they get older. Here, we’ll discuss the hows and whys of creating a trust, what to consider when naming a guardian and a trustee, and the available options for creating a special needs trust on a limited budget.
Not all families need a special needs trust, so let’s start by looking at the differences between a special needs trust and an ABLE account.
The Achieving a Better Life Experience (ABLE) Act was passed by Congress in 2014 to allow people with disabilities to build savings accounts without affecting their eligibility for government services. Generally, money accrued in an ABLE account can only be used to pay for disability-related expenses, but what this means is fairly broad — it includes anything from housing, transportation, and daily living expenses to equipment, therapies, and education.
Not all states’ ABLE programs are the same, but all ABLE accounts come with investing options that grow tax-free. You can use this free online tool to compare ABLE accounts in different states. As of January 2025, yearly contributions are capped at $19,000; however, those who choose not to participate in an eligible employer-sponsored retirement account can contribute an additional amount up to $14,580 annually (for Alaska and Hawaii residents, this figure is higher). Starting in 2026, individuals who contribute to their own ABLE accounts can qualify for the Saver’s Credit when they file taxes, and they can move funds from a 529 college savings account to an ABLE account without tax penalties.
✅ In California, the ABLE program is called CalABLE. Unlike ABLE accounts in other states, where the maximum amount cannot exceed $100K, CalABLE accounts can grow up to $529,000. (Note that while Medi-Cal benefits are not affected by any amount of money held in an ABLE account, a balance over $100,000 will jeopardize an individual’s Supplemental Security Income and other government benefits.) For more details about how to open an ABLE account for your child and what the funds can be spent on, check out our article 7 Key Questions about CalABLE Accounts Answered.
Do you need an ABLE account or a special needs trust?
The advantage of an ABLE account is that it is very inexpensive to set up and maintain, and your child can benefit from the funds in the account at any time; you don’t have to wait until you pass away to start using it to benefit your child. For example, if you want to contribute to your adult child’s rent, Social Security would count that as income and lower your child’s SSI benefits, so instead, you can put that money in the ABLE account and have the account pay the rent.
All ABLE accounts have an upper limit of how much you can contribute, so depending on your family’s finances, you may want to create both an ABLE account and a special needs trust.
If your child is set to inherit a valuable asset in your estate plan, such as your 401(k) or your family home, then that jeopardizes your child’s eligibility for government services if they need to remain under a certain or asset income level. If, however, you've put your assets into a special needs trust, then those assets won't count against your child's eligibility for government programs. This also applies to relatives who want to gift your child money; it should be gifted to the trust itself (or an ABLE account) to avoid negatively impacting your child's benefits.
Jarrett explains, “A trust is simply a tool used in estate planning to control the inheritance that you leave after you pass away. Instead of giving a portion of your estate to a person, outright, you place it in the hands of someone else you’ve appointed (the ‘trustee’) to manage. A special needs trust serves a very specific purpose, which is to take the funds that you’ve set aside for your child’s future and put them into the hands of a trustee to use for your child’s benefit, in accordance with the terms of the trust. ”
There are three types of special needs trusts:
Do you need a lawyer to set up a special needs trust?
Special needs trusts are typically created in conjunction with a special needs attorney, which can cost anywhere from $2,000–$5,000 (you may consider asking the attorney you choose if they will consider setting up a payment plan). None of the lawyers that our staff consulted recommended setting up a special needs trust without the help of a lawyer — it’s a complicated document, and it’s easy to make mistakes. In addition, a special needs trust is just one piece of overall estate planning.
Jarrett says, “You should meet with an estate attorney who is experienced in drafting special needs trusts and ask that person what type of special needs trust is the most appropriate for you and your family.” Hear her advice about hiring legal assistance:
Third-party special needs trusts are typically set up and administered by a child’s parents. While they cannot be used to pay for “basic needs” like housing or food, as that would disrupt Social Security benefits, third-party special needs trusts have fewer rules governing how the funds can be spent, so long as it helps the trust’s beneficiary. There is also no limit on how much money you can deposit each year, which can be useful if you receive a settlement or inheritance and don’t want to worry about disbursing the funds in smaller yearly increments.
But the real advantage of a special needs trust is that it encourages parents to create a very comprehensive plan for their child when they will no longer be their child’s primary caretaker.
Unlike first-party trusts, which are irrevocable and can’t be revised, third-party trusts can be altered. It’s a good idea to review the trust each year, particularly to update the letter of intent you’ll create that outlines your child’s ongoing needs and plan of care. Should any changes occur within your family structure, you may also need to reconsider who will serve as trustee, guardian, and/or make up the trust’s advisory committee. Finally, the advantage of a third-party trust for families raising young children with disabilities is that it leaves open the option of changing the structure of the trust once your child is older. For example, if your child may eventually be able to manage their finances on their own, you will want the flexibility of a revocable trust so that they can make that happen later on.
For more on special needs trusts, the Special Needs Alliance is a great resource.
The purpose of a special needs trust is to allow a person with disabilities to hold assets without affecting their eligibility for social services, but it is much more than that. When you create a special needs trust, you appoint a trustee or trustees to administer the trust when you’re no longer able; you nominate a guardian for your child; and you write a detailed letter of intent describing how you want your child to be cared for when you’re gone. These decisions are ultimately what make creating a special needs trust worthwhile, but they’re not easy. We’ll go into each of them below in more detail.
Jarrett explains, “In a trust, the concept is to put assets into the hands of a trustee to use for the benefit of your child. The trust will spell out how the trustee is permitted or required to use those assets. The important language usually included in these trusts is that the funds in the trust are there to supplement and not to replace any government benefits the child may be receiving.”
One of the most important — and difficult — decisions you’ll make when creating a special needs trust is deciding who will make care decisions for your child when you’re gone. We asked Jarrett and attorney Vanessa Terzian to walk us through the process and share some advice.
As parents, one or both of you will manage the trust for now; the trustee you nominate in your absence can be a family member, a friend, a corporation, or a trusted professional such as a licensed fiduciary, CPA, or attorney. Some parents consider naming one person to serve as both trustee and guardian. In the likelier event you nominate one person to be the trustee and one to be your child’s guardian, be sure to consider how effectively your chosen guardian would work with your chosen trustee, since their roles are necessarily interrelated.
Some characteristics you’ll want to look for in a trustee include:
Jarrett says, “The person serving in the role of trustee will have a lot of work, a lot of responsibility, and a lot of discretion. The trustee must be able to say no to the child (or future adult) sometimes. The person you choose should be able and willing to stay on top of things that need to be paid on a regular basis. This trust might be paying for health insurance premiums, or horseback riding lessons, or tuition. None of these are things that you would want to see fall through the cracks.”
She continues, “Successful trustees are the ones who are sitting down with a financial planner, evaluating the funds available to the trust, talking to the individual or having conversations with the important people in their life to get a sense of what the trust will need to pay for and how long it should last, and making a plan to stretch those funds to meet the needs of the individual for as long as possible.”
What is a corporate trustee?
If you don’t have a family member or other individual who can handle all the responsibilities of your special needs trust, you might consider a corporate trustee. Jarrett explains, “A corporate trustee is usually a business entity or wing of a bank or other financial institution that offers trustee services. You can ask your estate planning attorney for a recommendation with regard to selecting a corporate trustee, if appropriate to your situation, or you can research corporate trustees on your own. You should know that corporate trustees charge fees, and the fees may vary depending on the value of the trust — in other words, if the value of the trust is modest, then it may not be worthwhile pursuing a corporate trustee as the value could be eaten up by the trustee fees.”
If a corporate trustee feels too impersonal but you still want some oversight over your trust to mitigate risk, Terzian encourages parents to name a trust adviser or committee of advisers to oversee the management of the trust. This adviser or committee of advisers is not involved in the daily maintenance of the trust, but rather can be thought of as the “voice of the trustor” — ensuring that the trustee is acting in the best interests of your child. Because a special needs trust is a private document and is not overseen by a court, it can be useful to have an adviser or committee of trusted family members, friends, or professionals making sure your child’s best interests and various needs are being met. This advisory committee can also fire the trustee, should the need arise. For these reasons and more, it is important for families to write very detailed instructions to the trustee, along with a care plan for the beneficiary (more on this in our section on creating a letter of intent).
When it comes to choosing a guardian, Terzian cautions families against nominating more than one person. If you nominate a couple, for instance, you run the risk of that couple no longer being together when it comes time for them to serve, in which case the guardianship would default to one or the other. The same kind of forward-thinking is necessary when considering far-flung family and friends; if the person you want to serve as a guardian lives in another state or even overseas, it’s a good idea to name a local first responder until the permanent guardian is in place. Jarrett says, “Kids who have disabilities are some of the most vulnerable human beings on this earth, and if possible, the person who should serve as a guardian is someone who is linked to the child for life. It should be someone who (ideally) lives close by and is willing and able to live with the child [or conserved adult].”
Finally, think carefully about who among your family and friends you trust and why, and what traits you appreciate in them that might make them the best guardian for your child. For example, if your older sister works in a medical field and understands the medical challenges your kiddo faces, she might be a great choice to serve as a guardian; on the other hand, she might make a better adviser if you feel that your younger sister’s parenting style more closely matches your own. If your brother is less well-versed in disability, or perhaps has no kids of his own, but is very good at organizing and understanding finances, he might make an excellent trustee.
Before you create your special needs trust, communicate with your chosen family member or friend about what their responsibilities would be as your child’s guardian. You should compile a detailed letter that contains all of the information on your child’s care (more on this in the next section), and make sure to update the letter regularly as your child’s care changes over time.
Actual training on your child’s care needs can be even more effective than a detailed letter. Jarrett says, “Involve the future potential guardian in your child’s care now, if possible. My son has a G-tube, two wheelchairs, oxygen, and leg braces. The person we’ve selected to serve as guardian is currently receiving a crash course in my son’s daily care routine because 1) in an emergency, I’d rather avoid the deer-in-the-headlights moment of ‘Oh wow, what do I do now?’ and 2) it’s helpful to have others on hand who could step in even in a non-emergency. Once, when my husband was traveling and I did not have a nurse at home, I almost had to rush my daughter to the doctor, but I couldn’t leave my son with a babysitter unfamiliar with how to do G-tube feeds. Basically, you don’t want the first time that your selected guardian steps in and handles complex medical care to be in the middle of an emergency. I want that person to be confident and for the care aspect to be second nature, if at all possible. This is also a great way to find out if the person you’ve selected is really up for this or if they need to bow out gracefully and let someone else serve.”
While a letter of instructions or intent to your child’s guardian is not legally binding, it is the place to be very specific about goals, objectives, ideals — all of the things you want your child’s guardian to be considerate of and focus on.
Think of the letter of intent as the kind of detailed instructions you’d leave a caregiver if you were to leave your child in their care for a week. It should include everything from your child’s daily therapy and medication schedule to their favorite movies and how they like to spend their Saturdays. This letter will need to be updated each year as your child grows and his or her needs and schedule change.
As estate planning attorney Debra Koven tells us, “A letter of intent is a companion document for your special needs trust. It will provide both your guardian and your trustee invaluable information and guidance to care for your child. The whole point of creating an estate plan is to give you peace of mind that you've made the decisions you believe to be best for your family after you pass away. To that end, a letter of intent is an additional way to protect and care for your child. The letter should contain important information about the people and places in your child's life; details regarding the services they require and receive; instructions on their daily activities; and any additional information the parents know helps their child all in hopes of making the transition from one caregiver to another, as seamless as possible.”
You can find more information about writing a letter of intent (also called a plan of care) along with samples and templates in our article here.
Many attorneys will present you with a large three-ring binder containing all of the documents you’ve created together. You should consider adding all pertinent information about your child’s insurance, doctors, medications, therapists, and school records to this binder so that it’s all in one place as part of your plan of care.
✅ Tip: if you’re ready to leave paper binders in the past, we’ve got you. No need to drown in paperwork. There is an easier, digital option: Undivided’s super binder. In the Undivided app, you'll have a secure, digital binder that’s accessible from anywhere, easily shareable, and organized for your family’s needs. Upload your child’s IEP, medical records, and more, and have it all organized in one place! Get started→
“Many people, including some estate planners, have no idea how important the house is in the estate plan of a parent of a child with disabilities,” Jarrett says. “Your house is close to your child’s doctors and therapists. It may have been adapted and renovated for a child with limited mobility and/or durable medical equipment. It may be located in a county from which your child is receiving government benefits. The process of establishing an IEP in that school district may be very specific and unique. In other words, if it is possible to preserve the house for your child, and if it makes sense in your plan, definitely discuss this with the attorney who is preparing your documents. In my own estate plan, a separate trust exists just for the people who would serve as my son’s guardians so that they can live in my house without worrying about the monthly costs of the house.”
Jarrett continues, “If your home is not important to preserve for your child, but you know that your child will need some type of living arrangement to be planned in advance, explore those options now and make sure that the person who is appointed in your plan to serve as your child’s guardian is aware of what options will be available. Investigate group homes, talk to the potential future guardian, include your child in the conversation as much as would be appropriate, and make sure there’s a plan to address this aspect of your child’s life after you pass away.”
If investing in a third-party special needs trust isn’t currently an option for your family, or you don’t have a ready trustee you feel comfortable nominating, pooled trusts are a good option. Pooled trusts are set up and managed by a nonprofit organization that invests funds from many families. The nonprofit works with social workers, money managers, and attorneys who specialize in elder and special needs law. Some financial institutions won’t handle small special needs trusts and/or charge high fees, so pooled trusts can be a lower-cost way for families to connect with highly skilled trustees.
We spoke with Michelle Wolf, founder and CEO of Jewish LA Special Needs Trust & Services (JLA), a nonprofit based in Los Angeles that offers pooled trust options to families. Wolf likes to say that “a pooled trust is a special needs trust for the rest of us,” meaning that it’s an affordable way to have a professionally managed special needs trust. She says, “A pooled trust combines the assets of many different beneficiaries, which results in lower cost of management and potentially higher rates of return.” In addition, pooled trusts are often run by people who are familiar with laws, regulations, and issues pertaining to people with disabilities.
Not every family will have the option of leaving their child’s future in the hands of a paid trustee or reliable family member. As Wolf puts it, “Most non-wealthy families will appoint another family member or sibling, but this can create conflicts of interest and tension. Quite often, there is an assumption that a non-disabled sibling will take care of the disabled sibling once the parents or guardian can no longer care for them, but this often isn’t realistic.” A pooled trust can help alleviate some of the tensions that can arise from these situations.
JLA uses three different pots of money: third-party, first-party, and future-funded. “If you’re a middle-class family, you might want to create a future-funded trust, which refers to money from pensions, home sales, and life insurance that will come after the parents’ passing,” Wolf says. “At JLA, it costs $600 to set up a future-funded trust with the expectation that eventually it will have $20,000–$25,000. Professional trustees can charge up to $150 an hour and expect you to have at least $5,000 down the road.” First- and third-party trusts with JLA charge a $1,250 enrollment fee that covers the first 12 months of service. Learn more about JLA’s fees and financial examples here.
Both Special Needs Alliance and Special Needs Answers provide directories of available pooled trusts by state. Wolf reminds us to choose a trust based in the state where the beneficiary lives.
It’s important to find out exactly how much the pooled trust charges before joining, as there is often a one-time enrollment fee plus an annual fee. Some pooled trusts distribute funds at certain times of the month, which could be problematic if the beneficiary needs their funds more frequently. Another thing to keep in mind is that it can be difficult to move investment portfolios once you’ve joined a pooled trust, and many won’t allow real estate or other nontraditional investments.
Jarrett says, “The pooled trust operates under an already-formed trust agreement, which means you don’t have the ability to make decisions about the terms of the trust. It also may include provisions that indicate what happens to the funds remaining in the trust (if any) after your child passes away.”
Monika Jones, an attorney who founded The Brain Recovery Project to initiate and fund research on hemispherectomy and childhood drug-resistant epilepsy, cautions that both first-party and pooled trusts often contain a payback provision: if the beneficiary passes away, any remaining money in the trust can be used by the government to cover any Medicaid expenses that were incurred. A properly designed third-party trust does not require a payback provision, meaning that the government has no right to the funds when the beneficiary passes away.
When considering a pooled trust, compare programs carefully and set up a meeting with a program representative to discuss these and other potential concerns.
For families without many assets, a common source of funding for a special needs trust is a life insurance policy. Jarrett explains, “I wouldn’t purchase any fancy combo products (like life insurance combined with disability insurance or converting to whole life insurance) that I don’t understand. What I need is simple: an agreement with a company that they’ll pay a certain amount of money to my kid’s trust if I die unexpectedly. Buying life insurance is the placing of a bet with the company. You’re betting that you’re going to die before the policy runs out. The life insurance company is betting that you’re not going to die by then. If you win the bet, then the trust gets funded with an amount of money that is astronomically more than whatever you’ve paid in premiums to the company. If the company wins the bet, then you’ve paid some premiums basically for peace of mind — you know that if you pass away unexpectedly, the policy will be the source of funding for the special needs trust.”
We reached out to Marc Shulman, founder and president of the National Center on Life Planning, which guides families with special needs trusts and guardianships/conservatorships and provides support for life and estate planning. While the cost of a life insurance plan will differ based on many factors, including age and health conditions, Shulman says he always recommends permanent life insurance plans. His organization conducts in-depth interviews with families to discover the assets they might already have and help them make a plan.
Jarrett says, “If you’re relatively healthy and have no history of a condition that might make you uninsurable, then I’ll tell you to do what I did for my family and what a lot of other parents have done for their families: purchase term life insurance. It can be relatively inexpensive to purchase the amount of death benefit that you estimate you would need to cover the cost of medical needs and living arrangements for your child or to at least supplement the government benefits that are covering the cost. For parents of younger children who may not have the majority of their wealth in retirement plan accounts, term life insurance can be a great way to make sure there will be plenty of funds available to direct to a special needs trust. The overarching principle here is that as you continue working and contributing to your retirement plan account, eventually you’ll terminate the life insurance and rely on your retirement plan account to fund the trust.”
JLA refers families to financial advisers to help them make these decisions; another option is to go through an insurance broker. Before you do, you might consider using an online life insurance calculator to help you think through your options and determine what life insurance amount you’ll need based on income, age, and other important factors.
Jarrett emphasizes that even if you don’t have many assets that your child would inherit, it’s important to consider financial planning now because “you don’t know what the future could bring for your child.” She says, “At the time you pass away, your child might need to qualify financially for a benefits program. What if the government program from which they have been receiving benefits changes? What if your child’s condition worsens over time, and they need benefits that they did not need previously?”
These are not small decisions, and it’s important to remember that planning for your child’s future doesn’t have to happen all at once. You can make changes to whatever you decide at any point in the process. You can open an ABLE account that you and family members can fund a little bit at a time, and prepare a simple will on your own that includes a letter of intent to help lay the groundwork for a trust, whether pooled or third-party. Similarly, if you choose a low-cost life insurance plan now, you can upgrade it later. Whichever path you choose, you’ll have peace of mind in knowing you’ve begun the process of planning for your child’s future to ensure they can get the quality of life, love, and support they deserve.
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