What parents need to know about special needs trusts


Adam Cecil

Adam Cecil

Former Staff Writer

Adam Cecil is a former staff writer for Policygenius, a digital insurance brokerage trying to make sense of insurance for consumers. He is a podcast producer, writer, and video maker based in Brooklyn, NY.

Published October 18, 2015 | 2 min read

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Special needs trusts can be very powerful tools for those with dependents who are mentally or physically disabled. If you’re the parent of a special needs child, you’ve probably heard about special needs trusts before, and have a few questions about this complex legal relationship.

What is a special needs trust?

A special needs trust is a type of trust specifically designed for beneficiaries (of life insurance policies and wills) who are either mentally or physically disabled. Sometimes known as supplemental needs trusts, these trusts are most useful when the beneficiary does not have the legal capacity to handle their own finances or care.Special needs trusts are primarily useful because they allow the grantor to leave specific instructions for how the funds should be used. They also allow the trust to provide support to the named guardian while still allowing the beneficiary to qualify for public, needs-based benefit programs (Medicaid and Supplemental Security Income).

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Before anything, consult an attorney

It should go without saying that this is a "very nuanced financial planning issue," as our resident Certified Financial Planner, Tyler End, put it. You won’t be able to get all of the information you need from any blog or website, because each trust will have unique properties that reflect your unique financial and personal situation.Depending on what you want to happen after you’re gone and how you answer some basic questions, your lawyer will customize your trust to your specific situation:

  • What are your child’s needs?

  • Who will be providing care?

Be prepared to comprehensively answer these questions. Mostly, your lawyer will be interested in nailing down your wishes for how your money should be spent. You’ll want to have an idea of how much care will cost for the rest of your child’s life so you can make the most informed decision as to how the proceeds of your trust should be used.

-> How to name your child a life insurance beneficiary

Sometimes, you’ll want a non-related party to be a co-trustee of the proceeds of your estate and life insurance. What does this mean? Let’s say you want your sister to become the trustee and your child’s guardian, but she’s always been horrible with money. Plus, she’s probably going to pass away before your child.You could name your lawyer, the law firm, or a trust company (usually subsidiaries of banks or insurance companies) as the co-trustee. In this situation, your sister would need to clear all withdrawals with the co-trustee. If your sister died, your co-trustee could assume the role of sole trustee or you can set up a succession plan, during which the co-trustee could provide some stability.

Further resources

As we said before, you definitely need to discuss your special needs trust with a lawyer or financial advisor. If you still have questions about special needs trust that you want to research before talking to a lawyer, we suggest checking Special Needs Answers. You may also be interested in pooled special needs trusts, a type of trust that is operated by a non-profit. You can find a directory of pooled special needs trusts by state at Special Needs Answers.

Image: Christiana Care