Should I Disinherit My Disabled Child to Protect His Benefits?

Parents whose children are receiving government benefits, such as SSI and Medicaid, know that those benefits are means-tested. Those with countable assets greater than $2,000 can lose their eligibility to receive SSI and Medicaid. So they worry about leaving an inheritance to a child who may be receiving these benefits.

To avoid disqualifying their children from government benefits, some concerned parents consider disinheriting their children and leaving an inheritance to a sibling, another family member or a close friend with the understanding that the money will be used to provide for their children’s supplemental needs.

But doing this can result in their children being left with nothing. Below are a few of the risks associated with disinheriting a child with special needs rather than providing for him or her in a special needs trust.

1. Giving your assets to someone else gives them legal ownership of those assets. They may decide they’d rather not honor their commitment to provide for your child, or perhaps not to the extent you had hoped.
2. Even if you trust them to honor their commitments, life sometimes gets in the way. Because those assets legally belong to them, they can be exposed to their personal liabilities. For example, suppose they get in a terrible accident and seriously injure someone else. The assets earmarked for your child could be exposed to a judgment for those claims.
3. What happens if the people to whom you left the assets die before your child? Since they have legal ownership of those assets you left them, those assets will pass to their heirs, who may not have made a commitment to you to care for your child.

Creating a special needs trust will avoid these problems. A special needs trust can help preserve your child’s eligibility for government benefits while providing for supplemental needs that will enhance his or her life. They can be funded by bequests from a will, or with insurance money, ensuring that your child’s will be financially cared for when you are gone.