Special Needs Planning
Special needs trusts: the vehicle for everything ABLE can't hold
A trust is how grandparents leave an inheritance, how life insurance pays out, and how larger money supports your child for decades, all without touching benefit eligibility. It's also the document most families get drafted and then never actually fund.
What is a special needs trust?
A special needs trust holds money for a person with a disability without counting toward SSI or Medicaid resource limits. A trustee you choose manages distributions for needs beyond what benefits cover. Unlike ABLE accounts, trusts have no contribution caps, which makes them the right vehicle for inheritances and life insurance.
The distinction that changes everything
There are two fundamentally different animals here, and mixing them up is expensive.
- Third-party trusts hold money that was never your child's: your savings, grandparents' gifts, life insurance proceeds. When your child passes away, whatever remains goes to whoever you named. No Medicaid payback.
- First-party trusts hold money that legally belongs to your child: a lawsuit settlement, a direct inheritance that skipped the trust, back-pay from SSI. These work, but Medicaid gets reimbursed from what's left at death.
The practical rule: keep money that isn't your child's yet from ever becoming your child's directly. Once a well-meaning aunt names your kid in her will, a fixable situation becomes a first-party problem. We help you get ahead of that with the whole extended family.
An unfunded trust is a binder on a shelf
Attorneys draft trusts. What they usually don't do is retitle the accounts, update the beneficiary designations, and buy the insurance that gives the trust something to hold. That handoff is where most special needs plans quietly fail, and it's exactly the part we own. We coordinate with your attorney (or refer you to special needs attorneys we trust), then make sure every asset and beneficiary line actually points where the documents say.
How the trust gets its money
- Life insurance is the workhorse. If the plan needs $500,000 of support after you're gone, a survivorship policy is often the cheapest guaranteed way to create it. We size the need first, then shop the coverage, with commissions disclosed in dollars.
- Beneficiary designations on retirement accounts, routed through the trust correctly (retirement money in trusts has its own tax rules; this is joint work with your attorney and CPA).
- Family gifts and bequests, redirected from direct gifts to the trust.
- Coordination with the ABLE account: trustees can distribute into ABLE for expenses your child manages independently. The two tools work better as a system.
Plain answer to the common worry
Yes, a trust costs real attorney money to draft. Weigh that against what it protects: benefit eligibility, decades of support, and a plan that doesn't depend on any one person staying healthy, solvent, and organized. In our experience it's the least regretted line item in the plan.
Written by Colin Meeks, CFP® · Maryland Financial Advocates · Last updated August 6, 2026
Questions people actually ask
Someone organized, honest, and likely to outlast you, which sometimes means it shouldn't be a person at all. Families choose among siblings, professional trustees, banks, and nonprofit pooled trusts. Many name a family member alongside a professional co-trustee to get both love and bookkeeping.
Start with a 15-minute call. It's complimentary.
Tell us what's on your plate. We'll tell you honestly whether we can help, and you'll know exactly what working together costs before you commit to anything.
Prefer the phone? Call 410-663-0700 and ask for Colin.