Inheritance planning is not a “one-size-fits-all” endeavor. Different people on your inheritance list are just that, different, and the circumstances can dictate the best way to proceed with regard to each individual.
With this in mind, if you have a loved one with a disability, you have to tread lightly when you are creating your estate plan. Let’s take a look at the details.
Need-Based Government Benefits
The majority of people with disabilities rely on Medicaid for much-needed health insurance. This is a need-based program that is currently administered by the federal government along with each respective state government (New York in our case).
People with disabilities who qualify for Medicaid may also receive Supplemental Security Income (SSI). As the name indicate, this is a source of income for folks who do not have much earning power because of their limitations.
Once you gain eligibility for these programs, it is not necessarily permanent. A financial windfall could result in a loss of benefits, and this is why a significant direct inheritance can potentially do more harm than good.
What’s the Solution?
Fortunately, there is a solution in the form of a supplemental needs trust. These devices are alternately referred to as special needs trusts.
If you establish a supplemental needs trust for the benefit of a loved one, you would be the grantor. The person you are helping out would be referred to as the beneficiary, and you would appoint a trustee to manage the trust.
Regarding the trustee, any competent adult who is willing to accept the role can serve as a trustee from a legal perspective. However, there are also professional fiduciary entities that will provide trustee services. This avenue provides significant benefits, but there are costs involved.
Trust Mechanics
Once you establish and fund the trust, the trustee is in charge of the resources. The beneficiary would have no direct access to the assets that have been conveyed into the trust. For this reason, they are not counted against the beneficiary for benefit-eligibility purposes.
Under the rules of the program, the trustee can use the assets to make the beneficiary more comfortable in many ways. The trust can provide transportation, including a specially equipped vehicle, education, vacations, household items, and many other goods and services.
As long as the rules are not violated, asset eligibility will remain intact. This can provide a turnkey estate planning solution if someone with a disability is on your inheritance list.
Medicaid Estate Recovery
It is possible for a person with a disability to create a supplemental needs trust with their own money. Since this is the case, you may wonder why you can’t just leave an inheritance and have the beneficiary create their own trust.
Technically, you can do this, but your family would lose a lot in the process.
The Medicaid program is required to seek reimbursement from the estates of deceased beneficiaries. If the beneficiary funded the trust, any funds that remain in the trust after their death could be attached by Medicaid during the recovery phase.
Things are different if someone other than the beneficiary funds the trust. This is called a third-party trust, and assets that are left in the trust after the passing of the beneficiary would be protected.
Medicaid would not be able to reach them, and they would go to a successor beneficiary that you named in the trust declaration.
View Our On-Demand Webinar!
Attorney S.J. Khalsa has recorded a webinar that covers all the most important topics. There is no charge, and you can gain access right now if you click this link: Manhattan, NY estate planning webinar.
- Are You Prepared for Long-Term Care Costs? - August 15, 2026
- How Often Should I Review My Estate Plan? - August 1, 2026
- What Happens When an Executor and a Beneficiary Disagree? - July 15, 2026
See Larger Map Get Directions