You want to leave something behind for a family member with a disability. That’s a kind thing to do. But if you’re not careful, a gift or inheritance can cost them their Medicaid or Supplemental Security Income.
Here’s why that happens, and what you can do instead.
Why a Simple Will Isn’t Enough
Most wills just don’t account for this problem. If you leave money directly to someone who receives SSI or Medicaid, that money counts as a resource. Cross a certain dollar threshold, and their benefits stop. Sometimes right away.
This catches families off guard. You think you’re helping. Instead, you’ve created a bigger problem than the one you were trying to solve.
The Risk Hiding in Direct Gifts and Beneficiary Designations
It’s not just wills. Life insurance policies, retirement accounts, and even a joint bank account can carry the same risk. If your name isn’t the only one attached to an asset, and a disabled family member is named directly, that asset can disqualify them from benefits they depend on.
This happens more often with grandparents and siblings than with parents. Parents usually know about special needs planning. Grandparents and siblings often don’t find out until it’s too late.
What a Third-Party Special Needs Trust Does Instead
A third-party special needs trust holds money on behalf of your family member without counting against their benefits. You, or anyone else, can fund it. The trust pays for things Medicaid and SSI don’t cover, like therapy, education, or a vacation. Your family member still qualifies for their benefits.
This is the standard tool for this exact situation. You can read more about how it works on our special needs estate planning page.
Redirecting an Existing Will or Beneficiary Designation
If you already have an estate plan, you don’t need to start over. In most cases, you can update your will or change a beneficiary designation so the disabled family member’s share flows into a special needs trust instead of going to them directly.
This usually takes less effort than people expect. It’s a matter of naming the trust as the beneficiary, or the recipient under your will, rather than naming your family member by name.
What Grandparents and Siblings Should Do
If you’re a grandparent, check how your will currently names your grandchildren. A blanket clause like “divided equally among my grandchildren” can unintentionally include a disabled grandchild directly, without protection.
If you’re a sibling, the same applies to life insurance and retirement accounts. Check who’s listed as your beneficiary. If your sibling with a disability is named directly, that needs to change.
The Pour-Over Will: Catching What Slips Through
Even with a trust in place, some assets can still end up going to the wrong person by accident. A pour-over will acts as a backup. Anything that wasn’t properly redirected during your lifetime gets swept into the trust instead of going directly to your family member.
Think of it as a safety net for anything your main plan missed.
Getting Started
You don’t need to have everything figured out before you talk to an attorney. Bring what you have, your will, your beneficiary forms, whatever you’ve got, and we’ll go through it together. From there, we’ll identify what needs to change and set up a trust if one doesn’t already exist.
Key Takeaways
A direct gift or inheritance can disqualify a disabled family member from Medicaid or SSI. A third-party special needs trust solves this by holding assets on their behalf without counting against their benefits. Grandparents and siblings are especially likely to overlook this, since they’re less likely to be involved in the primary special needs planning for a family member.
Frequently Asked Questions
Can I leave money directly to a disabled family member in my will? You can, but it often disqualifies them from Medicaid or SSI. A third-party special needs trust avoids this problem.
What’s the difference between naming my family member versus naming a trust? Naming your family member directly gives them the asset outright, which counts against their benefits. Naming a trust keeps the asset available to them without affecting eligibility.
Do grandparents need their own special needs trust for a grandchild? Not necessarily. In many cases, a grandparent can contribute to a trust that’s already been set up by the child’s parents, or help establish one if none exists.
What happens if I forget to update a life insurance beneficiary? That policy would pay out directly to your family member and could affect their benefits. It’s worth reviewing all your beneficiary designations, not just your will.
Is a pour-over will necessary if I already have a special needs trust? It’s a good safeguard. It catches any assets that weren’t properly redirected during your lifetime and directs them into the trust instead.
We Help Grandparents, Siblings, and Extended Family Get This Right
You don’t have to be a parent to protect a family member’s future. Attorney Benjamin D. Eckman has spent more than 25 years helping New Jersey families, including grandparents and siblings, structure their estate plans so a gift never costs someone their benefits.
Call 908-206-1000 or book a consultation to talk through your plan.
