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Estate Planning for Special Needs Adults

  • Jun 17, 2022

One very common way to transfer wealth is simply to make a gift of it to the recipient. The Internal Revenue Code allows gifts of up to $13,000 per year to a single individual free of income, gift, estate, or inheritance taxes.

While this method works well for transferring money in many cases, problems arise if one transfers money to special needs adults.

Many federal programs are “means-tested,” meaning that the individual receiving benefits cannot have more than a certain amount in assets. Supplemental Security Income and Medicaid are examples of means-tested programs.

In other cases, an adult with special needs may already have a substantial sum of money, either from their own resources or from an accident or personal injury settlement. Given the high cost of skilled care, private funds may not be enough to help provide the attention a special needs adult requires.

If you wish to give a little extra money to a loved one with special needs, or if you need to organize care for a loved one with special needs, you need to give careful consideration to planning for the control, ownership, and distribution of their funds.

Estate planning for special needs adults needn’t be elaborate, but there are pitfalls for the unwary. If you are in New York or New Jersey, a dedicated New York or New Jersey special needs attorney can help you organize a trust that will meet your requirements.

Types of Special Needs Estate Planning

A special needs trust can solve many problems faced in financing care for special needs adults.


If the special needs adult already has significant assets from a personal injury settlement or other property, a self settled special needs trust (AKA, d4A trust or OBRA ’93 trust) can be established by a parent, grandparent, legal guardian, or by the person with special needs herself if she has the cognitive ability to create a trust. There will be no gift or transfer tax penalties if the special needs adult is under age 65.

However, it might be difficult to pass any funds remaining in the trust to the heirs of the special needs adult if Medicaid has funded care. Medicaid rules require that any funds expended must be repaid before the estate of a special needs adult can pass to heirs.

With careful planning, it is possible to create a complex trust that provides care for the special-needs adult during their lifetime and then reverts to the family after death.


Another sort of trust is the simple third-party trust. This is most commonly used to fund extras while preserving the benefits eligibility of the special needs adult. In a third-party trust, a trustee, usually a relative, is appointed to manage the funds and distribute them according to the terms of the trust document. The trust funds are for other expenses, not government benefits, like food or shelter.

If the third-party trust did not fund the property of the special needs adult, but by someone else, it should be possible for any leftover funds to pass to family members after the death of the beneficiary.

Which One is Best for My Special Needs Adult?

adult special needs planningCreating a special needs trust NY or NJ needn’t be a complicated task. However, creating one requires careful consideration of the situation of the special needs adult and the objectives.

Usually, the most important task in setting up a special needs trust is to care for the special needs adult while preserving government benefits like Medicaid and SSI. A good special needs trust can certainly be a solution to the problem.

If inherited wealth or the need to manage a personal injury settlement is an issue, more careful planning is required. Carefully crafting the special needs trust ensures careful use of the funds of the special needs adult. In such cases, Medicaid or SSI benefits may not be fully available, as the special needs adult has significant resources. Consultation with an attorney can be helpful in such situations.

The Falcon Law Group is a firm experienced in preparing trusts and has served many clients in New York and New Jersey. If you need the services of a special needs lawyer NJ or NY to set up a special needs trust New York or New Jersey, contact us today for a consultation.

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