Estate Planning for Special Needs Children

One concern voiced by parents of children with special needs is the uncertain future awaiting their child; particularly regarding their wellbeing after the parents pass away. This includes worries about both the ongoing care and financial support for children transitioning into adulthood, as well as questions about the future prospects of high-functioning children who may eventually achieve independence or gainful employment. Currently in the U.S., approximately 50% of autistic adults live with a family member, while only 25% are currently employed.¹

There are financial solutions that can help ease some of these concerns. For example, estate planning for special needs children could include establishing a special needs trust (SNT) or an Achieving a Better Life Experience (ABLE) account.

Special needs trusts

An SNT aims to maintain or enhance the quality of life for individuals with disabilities while ensuring their continued eligibility for government means-tested programs such as Supplemental Security Income (SSI) and Medicaid. These programs typically require individuals to have assets valued at less than $2,000 to qualify.

There are three primary types of SNTs, each with its own eligibility and funding rules, as well as advantages and disadvantages. These trusts are designed to complement government benefits and provide financial security for individuals with disabilities.

1. Third-party individual SNT. Established by one or more individuals for the benefit of a disabled individual, this trust is funded with assets that did not originally belong to the beneficiary. Typically established by parents or grandparents, it provides flexibility of distributions both before and after the grantors’ passing. Initial funding is minimal, with the option to add more assets later, such as when a parent dies and their life insurance payout is left to the trust. Importantly, the third-party SNT does not require repayment of Medicaid benefits paid to the beneficiary. Depending on the terms, the trustee may adjust them reasonably should the beneficiary become capable of managing their own affairs.
2. First-party individual SNT (or self-settled SNT). Funded with assets belonging to the individual with disabilities, often from an inheritance, legal settlements, or employment, this irrevocable trust grants the beneficiary greater control over their assets compared to other SNTs or government-based benefits. The downside is that the beneficiary must be approved as disabled per the government definition and any remaining assets upon the beneficiary’s death must reimburse state Medicaid benefits received. This trust can only be established for disabled individuals under the age of 65, unless it’s a pooled SNT.
3. Pooled SNT. Managed by a nonprofit organization, a pooled SNT serves multiple individual beneficiaries and grantors. Each participant has their own account, but their assets are pooled for investment and administration by the nonprofit. Both third-party and first-party participation are possible. Upon the beneficiary’s death, any remaining assets may either reimburse Medicaid or remain with the nonprofit. Pooled SNTs are typically more cost-effective than third-party or first party individual SNTs.

ABLE accounts

Another way to help pay expenses for individuals with disabilities is an Achieving a Better Life Experience (ABLE) tax-advantaged savings account, which can pay for lesser expenses and can also be used as a supplement to a SNT. ABLE accounts are available to individuals diagnosed with disabilities before the age of 26. In 2026 the eligibility age raises to 46, due to changes in SECURE Act 2.0. The account can be managed by the beneficiary or a third-party, such as a family member. If the disabled individual is deemed well enough to manage the account, it could help them feel more independent.

ABLE accounts don’t jeopardize the disabled person’s access to government programs, if the account’s value does not exceed $100,000. Family members, the beneficiary, or friends can make contributions to the account. As of 2024, people with disabilities and family members can deposit up to $18,000 in an ABLE account without gift tax implications.² While contributions aren’t tax deductible, any returns generated within the account are tax-free, as are distributions to the beneficiary. Like an SNT, the account will pass to a designated successor upon the beneficiary’s death and the state may require Medicaid payback from the account.

How much to contribute

The contribution amount to a SNT or ABLE account can vary greatly from family to family. For example, if your special needs child lives in a group home, current expenses can serve as a guide to determine the amount of income required from the SNT in addition to government benefits. When calculating the contribution amounts, consider progressive needs of your special needs child over their lifetime, which may warrant increasing health and care expenses. The life expectancy of the grantors who fund the SNT — whether you or other family members — is also worth factoring into the contribution plan, along with rising medical costs, inflation, and the life expectancy of the beneficiary.

For individuals with disabilities who are more independent, their needs will differ. As mentioned earlier, half of autistic adults live with a family member, indicating potential future costs such as housing, food, utilities, medical copays, transportation, clothing, and care or advocacy services. Upon the passing of the grantors, there may be expenses associated with tax and trust preparation or legal fees. The amount of government benefits received by the special needs child will likely not meet the amount of income needed for the desired level of care after your passing.

The total funding of an SNT could be $100,000 or it might be $1 million; it depends on many varied factors. At Mercer Advisors, we look at your complete financial picture: financial planning, investment management, tax planning, estate planning, insurance solutions, and trustee services. We can connect the dots to help your family secure your financial life now and for the future. Having a special needs child certainly merits a more comprehensive estate plan than usual, but your entire family, including other children, should be part of the plan.

Why an estate plan is important

Without an estate plan for your special needs child that establishes proper protections, their means-tested public benefits may be jeopardized upon your passing. Further, any assets left to your child, outside of a trust that protects the assets, could be reclaimed by the state to pay back Medicaid or SSI benefits. Standard wills and estate plans often don’t provide adequate financial support for loved ones with disabilities.

To ensure that your special needs child receives the financial security you envision after your passing, consider seeking guidance from specialists in financial and estate planning. Estate plans should be periodically reviewed and adjusted to account for changes in laws and life. An estate attorney stays current on laws and tax rules to help you make necessary updates to your estate plan.

Mercer Advisors can work with your estate attorney or help you find one that is knowledgeable and experienced with estate planning for special needs children. If you are not our client and have questions about estate planning for special needs children, let’s talk.

¹ “51 Autism Statistics: How Many People Have Autism?”, Discovery ABA, Oct. 31, 2023.

² “What are the ABLE account contributions limits for 2024?”, Business Insider, Dec. 6, 2023.