Special Needs Planning

Life insurance and financial professionals often seek to differentiate themselves from their competitors. Some might work with young professionals. Others help older, wealthy clients manage estate tax issues. Still others may find a niche coaching business owners with regard to buy-sell planning or employee benefits. What about helping those who have a family member with special needs?

Most cases will start with helping the parents of a child with special needs. However, other family members—including siblings and grandparents—can end up in the role of financial caretaker for a person with special needs. With the advances in medical care, many special-needs family members can live for a long time, making financial planning especially important.

Types of Issues Common to Special-Needs Families
Families who are taking care of members with special needs are dealing with financial concerns that are of a different shape than more traditional clients.


Retirement planning for most clients involves making sure the individual, or both spouses if married, have enough savings to produce the income needed to maintain lifestyle in retirement.
A special-needs child may not be able to produce income at any point during his or her lifetime to pay for the child’s own support. Usually the child’s parents must make plans to provide for that support for as long as the child lives.

In the special-needs arena the life expectancy of the family member who needs care can be an important factor in making sensible financial plans. In some cases, even though a child is impaired, the family expects the child to have a normal life expectancy. For many, in addition to normal support needs, supplemental medical or therapy expenses can last a lifetime.

When working with parents who have a child with special needs, the lump sum needed to support a comfortable retirement can easily be more than twice that of a comparable married couple without a special-needs child. Likewise, extra life insurance coverage is needed to protect against the shortage of funds due to the possibility of a preretirement death.


Family who want to make assets available to special-needs beneficiaries should generally consider drafting a special-needs trust. A special-needs trust or supplemental-needs trust (SNT) is a specialized legal document designed to provide benefits to the beneficiary without adding to the person’s countable net worth or countable income.

An SNT can be created to come into existence immediately, or it can spring into existence in the future. For example, a special-needs person’s parents might create an SNT inside of the last will or revocable trust. However, families are encouraged to prepare a stand-alone special-needs trust so they can have the peace of mind that the trust is created and in existence during their lifetime.
An SNT enables a person with a physical or mental disability to have, held in trust, an unlimited amount of assets. If the SNT is drafted and administered properly, those assets do not count against SSI or Medicaid eligibility.

An SNT gives the trustee the ability to provide for supplemental and extra care over and above that which the  government provides. The SNT must not require the trustee to make distributions for the special-needs beneficiary, as such a requirement would cause the trust assets to count as available resources.

To be effective, SNTs must be irrevocable once they are created and funded. An attorney drafting the trust will coach the family about how the trust should be administered and will include directions in the trust for its termination and ultimate distribution to family members or other beneficiaries.


  • As with any other trust, making the right selection for the trustee can mean the difference between adequate financial support for the beneficiary and failure to meet the planning objectives. Consider hiring a professional trustee to complement the caregiving skills of a family guardian.
  • SNTs can be created to exist right now or to spring into existence at someone’s death (usually the caregiving parent). In many cases, choosing the testamentary trust approach will offer the most flexibility to the family.
  • There can be tension between the choices of naming an individual the beneficiary of a qualified account asset (such as an IRA) or naming a trust beneficiary. Issues such as taxation and stretch options may be less important to those who have a special-needs beneficiary than the proper care of the loved one.
  • If a special-needs beneficiary gets money directly from an inheritance or by beneficiary designation, it may revoke eligibility for needs-based benefits, and getting eligibility back may be difficulty. While undoing a bequest though post-death estate planning by using a qualified disclaimer is possible in many instances, that technique is probably not effective to restore a beneficiary’s access to needs-based benefits.

When people move out of state, they are always faced with the question of rather or not the trust they established should be revoked and a new trust established.  This is especially true if you are moving into or out of the state of California.  A recent article from LakeCountyNews.com discusses the issues involved with moving from state to state.

Trust are contracts and like all contracts they much declare which state’s laws govern the administration, interpretation and validity of the trust instrument.  Typically, the laws of the state where the trust was established will be chosen.  It’s difficult for a state to have to interpret a trust established out of state and apply a different states laws while relating to the interpretation and validity of the trust.   In certain areas, however, California law requires that the trust follow the statutory rules without exception.

People who relocate into or out of California may confront the issue of whether the living trust that they established in the state of their former residence should be revoked and a new trust established under the laws of their new state of residence.

Let us discuss the issues.

Trusts are contracts. Like all contracts trusts must declare which state’s laws govern the administration, interpretation and validity of the trust instrument.

Typically, the laws of the state where the trust is established are initially chosen.   Accordingly, when a California resident establishes a living trust for his California assets, California law governs.   A California court is then much better able to understand how the terms of the trust and California law interplay.

It is more difficult when a court must interpret a trust established out of state and apply a different state’s law relating to the interpretation and validity of the trust.

California statutory trustee powers, trustee authorities and trust administration rules that apply to all California trusts, except insofar as the trust specifically provides otherwise, automatically apply.

In certain areas, however, California law requires that the trust follow the statutory rules without exception.

What if the California resident later leaves California? A trust is administered wherever the trustee resides.   The laws of the second state where the trustee now resides would apply should the trustee ever use the state’s courts with respect to administration matters, such as the duties of the trustee to the beneficiaries and the rights of the beneficiaries under state law.

The laws of the first state would usually continue to apply to issues of interpretation and validity.   That said, different states take different views on what issues are matters of administration, on the one hand, versus matters of interpretation or validity, on the other.

Does that mean that a new trust must always be established in the second state?   It depends.

If the resident moves between community property states then perhaps a new trust is not necessarily needed.    Some trusts provide that its governing law may be changed.

If so, is changing which state law governs sufficient?   Not usually. Amending the state specific legal references concerning the trustee powers, trustee authority, and definition of legal terms will need to be amended.

Next, is it always desirable to change the jurisdiction of a trust when relocating?   Not always.   It might not be suitable if there were significant real property holdings or legal issues continuing in the first state.

For example, consider a settlor moves from California to Arizona, also a community property state, but who keeps a home in California and has death beneficiaries in California, he or she might decide to keep the California trust as such.

Also there may be asset protection and tax differences between the laws of the states that require consideration.

Depending on circumstance, the settlor might decide to add the new assets acquired in Arizona to the California trust or perhaps establish a separate trust under Arizona law.

What if the original trust is generally speaking out of date? Obviously, in that case it is much more likely that the old trust will be revoked (scrapped) and assets transferred to a new trust established under the laws of the second state.

Lastly, when people change residences they will want to create new powers of attorneys under the new state’s laws to designate agents to make decisions during periods of incapacity affecting their finances, property, legal affairs, and health care.

Moving from state to state does not always require a new trust.  If you are moving out of a state and selling your assets in that state then you will probably want to set up a new trust.  If you are moving to a new state but keeping assets in your old state then you may want to have two trusts.  Keep the old one in place and set up a new one for the assets that will be acquired in your new state.  Of course, if the trust is out of date then you will want to scrap that trust completely and do a new one.  Lastly, when move to a new state remember to set up a new power of attorney under the new state’s laws.