Why a Special Needs Trust Might Be the Most Important Thing You Do for Your Child
Let’s say Michael has a daughter named Lily. Lily is an adult with special needs. She qualifies for government assistance—programs like Supplemental Security Income (SSI), Medicaid, and housing support. These benefits aren’t just helpful. They’re essential. They keep her housed. They help with medical care. They provide the kind of support structure that allows her to live with dignity and some independence.
Now imagine this: Michael loves Lily deeply. He wants to make sure she’s taken care of after he’s gone. So in his will, he leaves her a portion of his estate. Seems like a generous, loving act, right?
It is. But here’s the problem: the second that inheritance hits Lily’s account, she’s disqualified from the very benefits she depends on. Why? Because those programs are means-tested. Even a few thousand dollars can trigger a review and suspension of benefits. Once she loses eligibility, she’s left to use that inheritance to pay for the very services she used to receive—until the money runs out. And when it does, she has to start from scratch. It’s a costly cycle that could have been avoided.
The Solution: A Special Needs Trust
A Special Needs Trust (sometimes called a Supplemental Needs Trust) is a legal tool that allows assets to be set aside for a person with disabilities—without interfering with their eligibility for government benefits.
Here’s how it works: the trust holds the inheritance or other assets—not the beneficiary. Lily doesn’t directly own the money, which means it doesn’t count against her when it comes to eligibility. The trust pays for expenses that supplement (not replace) her benefits—things like therapy, travel, out-of-pocket medical care, or educational needs.
This isn’t a loophole. It’s a legally recognized protection built into both federal law (specifically 42 U.S.C. § 1396p(d)(4)) and Nebraska policy.
What Can a Special Needs Trust Pay For?
A well-managed Special Needs Trust can pay for:
Personal care assistants or aides
Vacations, hobbies, and recreational activities
Special medical equipment not covered by Medicaid
Technology or transportation needs (like a wheelchair-accessible van)
Internet, cable, and phone bills
Training, education, job coaching
Legal and advocacy services
Essentially, it enhances quality of life without replacing essential public support.
Types of Special Needs Trusts
There are three common types of Special Needs Trusts relevant to Nebraska families:
1. Third-Party Special Needs Trust:
This is created by someone other than the person with the disability—often a parent or grandparent. It’s funded with assets that do not belong to the beneficiary. These trusts do not require a Medicaid payback when the beneficiary passes away.
2. First-Party Special Needs Trust (Self-Settled or d(4)(A) Trust):
Used when the beneficiary already owns the money (like from a settlement or direct inheritance). This trust must include a provision that pays back the state for Medicaid benefits received during the individual’s lifetime. The trust must be established and funded before the beneficiary turns 65, or it won’t qualify.
3. Pooled Special Needs Trust:
Managed by nonprofit organizations, these are ideal for individuals with smaller amounts of money or without a suitable trustee. Each beneficiary has their own account, but funds are pooled for investment and management purposes. These can be either first-party (with payback) or third-party (without payback).
Trustee Selection Matters
Choosing the right trustee is critical. This person (or institution) will be managing money on behalf of someone who can’t always advocate for themselves. It needs to be someone who is not only trustworthy but also understands—or is willing to learn—the rules surrounding disability benefits and trust management. In many cases, appointing a professional trustee is the best choice.
Include a Letter of Intent
While not legally binding, a Letter of Intent is one of the most powerful tools you can leave behind. It gives future trustees and caregivers insights into Lily’s preferences, routines, medical needs, personal history, and your hopes for her future. It’s a way to pass on not just instructions—but love, context, and care.
Timing Is Everything
If a person receives a direct inheritance or gift before a Special Needs Trust is in place, the damage is often already done. That money could disqualify them from benefits for months or years, depending on the amount. It’s essential that the trust be established before any assets are transferred.
And inheritance isn’t the only situation where these trusts come into play. They can also be used to protect:
Lawsuit settlements
Divorce proceeds
Gifts from well-meaning family members
Life insurance policies
Keeping It Current
Special Needs Trusts are not a one-and-done deal. They should be reviewed regularly—at least every 3-5 years, or after any major life event (marriage, divorce, the death of a trustee, a move to another state, etc.). Laws change. Lives change. Your plan should evolve too.
A Note About Integration
A Special Needs Trust is not an island. It should be part of a broader estate plan that might include:
A will or revocable living trust that directs assets into the Special Needs Trust
A guardianship plan (especially for minors or adults needing oversight)
Life insurance designed to fund the trust after your passing
The Bottom Line
This isn’t just about estate planning or legal documents. This is about real security for someone you love. It’s about protecting the care they rely on while giving them access to the things that make life fuller and richer.
If you’re raising, caring for, or planning for someone with special needs, a Special Needs Trust is not just a smart move—it’s an act of love. Let’s make sure your plan is solid.
Want to learn more about how this works in Nebraska, or whether a Special Needs Trust makes sense for your family? Reach out to me at 402-259-0059 or zach@zandersonlaw.com. This is what we do—and we’re here to help you do it right.