When a parent or grandparent is planning for a loved one with a disability, the conversation often begins with a deeply personal question: How can I provide support without creating harm?
For many families, that concern is tied to public benefits. A loved one may already receive SSI, Medicaid, housing support, or other programs that depend on strict financial eligibility rules. Families understand that these benefits are important. In many cases, they provide not only income support or medical coverage, but access to programs, services, and care arrangements that would be difficult or impossible to replace privately.
This creates a painful planning dilemma. Parents and grandparents want their loved one to be protected. They want to leave something behind that can improve quality of life. But they also worry that an inheritance could interrupt the very benefits their loved one depends on.
Out of that fear, some families consider leaving the loved one out of the estate plan entirely. Others leave the loved one’s share to a sibling or another “responsible” family member, with private instructions to use the money for the person with a disability. These choices are usually made with the best intentions. They are attempts to protect someone vulnerable.
But they can create serious problems.
There is often a better way.
A properly designed third-party Supplemental Needs Trust can allow a parent, grandparent, or other loved one to provide an inheritance while helping preserve eligibility for important public benefits. It can create structure, flexibility, and long-term support without forcing a family to choose between “leaving assets outright” and “leaving someone out.”
Why an Outright Inheritance Can Create a Problem
Many public benefit programs have strict financial limits. For example, a person receiving needs-based benefits may be permitted to own only a very small amount of countable resources. If that person receives an inheritance outright, the inheritance may cause them to exceed the allowable limit.
The result can be disruptive and stressful. Benefits may be reduced, suspended, or lost. The family may then need to spend time and money trying to correct a problem that could have been avoided with proper planning. In some cases, the inherited funds must be spent down before benefits can resume. In other cases, a different type of trust may need to be established after the fact, often with more restrictions than the family would have chosen if planning had been done in advance.
This is why planning before the inheritance is received matters so much.
When families plan proactively, they can decide how support should be provided, who should manage the funds, what quality-of-life goals matter most, and how the estate plan should coordinate with the loved one’s benefits. Without that planning, the family may be left reacting to a crisis.
The Risk of Leaving Assets to a Sibling “For” the Loved One
Another common approach is to leave the inheritance to a sibling or other trusted person with the understanding that they will use the money for the loved one with a disability.
At first, this may seem simple. The loved one receiving benefits does not inherit directly. The sibling can help as needed. The family avoids a more complicated planning conversation.
But legally, this arrangement is not as protective as it may feel.
If the sibling inherits the assets outright, those assets belong to the sibling. They are not legally set aside for the loved one with a disability. Even if the sibling fully intends to honor the parent’s wishes, the funds may be exposed to the sibling’s own life circumstances.
Those risks may include creditors, divorce, lawsuits, financial mismanagement, premature death, family conflict, or a future change in relationship. If the sibling dies unexpectedly, the remaining funds may pass according to the sibling’s own estate plan, not according to the parent’s wishes. If the sibling experiences financial trouble, the funds may be vulnerable because they are legally the sibling’s assets.
This kind of informal arrangement can also place an emotional burden on the sibling. They may feel responsible for making financial, personal, and family decisions without clear instructions, legal authority, or protection. What began as a practical shortcut can become a source of confusion and conflict.
A Supplemental Needs Trust provides a more formal and reliable structure.
What Is a Third-Party Supplemental Needs Trust?
A Supplemental Needs Trust is a trust designed to hold assets for the benefit of a person with a disability while preserving eligibility for certain needs-based public benefits. The trust is intended to supplement, not replace, what public benefits provide.
A third-party Supplemental Needs Trust is funded with assets that belong to someone other than the person with a disability. For example, a parent, grandparent, aunt, uncle, sibling, or family friend may create or fund the trust as part of their own estate plan.
This distinction is important.
If the funds belong to the person with a disability, a first-party Supplemental Needs Trust may be required. That type of trust has its own rules and often includes a Medicaid payback requirement after the beneficiary’s death.
A third-party Supplemental Needs Trust is different because the assets never belonged to the beneficiary. When properly structured and administered, it generally does not require Medicaid payback. This means that after the beneficiary’s death, any remaining trust assets can pass according to the instructions of the person who created the trust, rather than being paid back to the State first.
For many parents and grandparents, this is an important part of the planning conversation. They want to support their loved one during life, but they may also want any remaining funds to pass to siblings, nieces, nephews, charities, or other beneficiaries after the loved one’s death. A third-party Supplemental Needs Trust can help accomplish that goal.
A Practical Example
Consider a parent whose adult child receives SSI and Medicaid because of a disability. The parent wants to treat their children fairly, but also knows that leaving an inheritance outright to the child with a disability could interrupt benefits.
The parent considers leaving that child’s share to another adult child, with instructions to “use it for your sibling.” The parent trusts that child completely and believes this will avoid a benefits problem.
But what if the sibling later divorces? What if the sibling is sued after a car accident? What if the sibling dies before the funds are fully used? What if the sibling wants to help, but is unsure what they may pay for without affecting benefits?
A third-party Supplemental Needs Trust creates a better framework. Instead of leaving the inheritance outright to the child with a disability or informally to a sibling, the parent’s estate plan directs the inheritance into a trust specifically designed for the child with a disability. The trust can provide guidance about how funds should be used, who should administer them, and what happens to remaining funds after the beneficiary’s death.
The loved one remains supported. Benefits are better protected. The sibling is not left carrying the responsibility alone without structure.
How Trust Funds Can Improve Quality of Life
One misconception about Supplemental Needs Trusts is that they are only about restriction. Families sometimes worry that placing an inheritance in trust means the funds will be difficult to use or inaccessible in meaningful ways.
In reality, a well-designed Supplemental Needs Trust can be an important quality-of-life planning tool.
Because public benefits often provide only for basic needs, trust funds may be used to provide additional support, comfort, enrichment, and flexibility. Depending on the beneficiary’s circumstances and applicable benefit rules, trust funds may help pay for things such as therapies not otherwise covered, care coordination, recreation, technology, furniture, clothing, education, transportation, travel, companionship supports, hobbies, personal items, and other services or experiences that enhance the beneficiary’s life.
The goal is not merely to preserve benefits. The goal is to help the person live as fully and comfortably as possible while maintaining access to the programs and services they need.
Families should not assume that planning for benefits means planning for a bare minimum life. Thoughtful planning can preserve benefits while also creating a source of support for the extras that matter.
Part of a Comprehensive Estate Plan
For many families, the best approach is to include a third-party Supplemental Needs Trust as part of a comprehensive estate plan. This allows the trust to coordinate with the parent or grandparent’s broader planning goals.
The plan may include a will, revocable living trust, powers of attorney, health care documents, beneficiary designations, asset alignment, and instructions about how assets should be administered after death. The Supplemental Needs Trust becomes one part of that larger structure.
In some circumstances, a third-party Supplemental Needs Trust may also be created as a standalone trust. This may be useful when multiple family members want a coordinated place to direct gifts or inheritance for the loved one with a disability. For example, grandparents, aunts, uncles, or other relatives may want to name the trust as a beneficiary of their own estate plans rather than leaving assets directly to the individual.
Whether the trust is built into a larger estate plan or created as a standalone document, coordination matters. The trust should not be treated as a generic form. It should be designed around the beneficiary’s circumstances, the benefits involved, the family’s goals, and the assets that may be used to provide support.
How Supplemental Needs Trusts and ABLE Accounts May Work Together
An ABLE account may also be part of the planning toolkit for some individuals with disabilities. ABLE accounts can offer flexibility and independence, especially for certain qualified disability expenses. They may be particularly useful when the individual can manage some funds directly or when the family wants a tool that allows more day-to-day spending flexibility.
However, an ABLE account is not a substitute for a comprehensive estate plan or a third-party Supplemental Needs Trust. Contribution limits, account balance rules, eligibility requirements, and payback considerations all matter.
For many families, the planning question is not whether to use one tool or the other. The better question is how the available tools can work together to support the loved one’s needs, independence, benefits, and long-term quality of life.
Planning Now Can Prevent a Crisis Later
The most protective planning usually happens before assets pass to the loved one with a disability. Once an inheritance has already been received outright, the family’s options may become more limited, more expensive, and more reactive.
That is why parents and grandparents should not wait until there is a death, a crisis, or a benefits disruption to address these issues. If a loved one is already receiving SSI, Medicaid, or other needs-based benefits, the estate plan should be reviewed with those benefits in mind.
This is true for families who do not yet have an estate plan. It is also true for families who already have a will, trust, or beneficiary designations in place. A plan that was appropriate years ago may not reflect the loved one’s current benefits, diagnosis, support needs, or family circumstances.
Estate planning for a loved one with a disability is not only about deciding who receives what. It is about creating a structure that protects access to benefits, provides additional support, and reduces the likelihood of confusion or conflict later.
A Better Way to Protect
Families should not have to choose between protecting benefits and providing an inheritance. They should not have to rely on informal promises. They should not have to disinherit someone they love because they are afraid of doing harm.
A third-party Supplemental Needs Trust can offer a better path.
It allows families to plan with compassion and structure. It helps preserve public benefits while creating a source of support for the things benefits may not provide. It allows parents and grandparents to leave clear instructions rather than uncertainty. It can protect the loved one with a disability while also protecting the family members asked to help.
At DiPietro Law, we help families in Delaware and Maryland think through these decisions as part of a comprehensive planning process. That includes coordinating the estate plan, beneficiary designations, trust structure, and long-term support goals so the plan is designed to work when it is needed most.
If you have a loved one with a disability, or if your existing estate plan leaves assets outright to that loved one or informally to another family member, it may be time for a review. Thoughtful planning now can prevent a benefits crisis later and create a better way to protect someone you love.
Meaghan Mahoney Hudson( Attorney )
Originally from Albany, New York, Meaghan has called Delaware home for nearly two decades. She earned her undergraduate degree from Le Moyne College in Syracuse, New York, and her Juris Doctor from Roger Williams University School of Law in Bristol, Rhode Island.
A close relationship with her maternal grandmother shaped her deep appreciation for family and intergenerational connections, which is reflected in her commitment to this area of the law. Outside of her practice, she enjoys spending time with her two daughters, as well as reading, traveling, and exploring new food experiences.
Read Meaghan’s full bio here.
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Special Needs Planning
