If you have a child with special needs, standard estate planning advice doesn’t apply to your family. In fact, following it could seriously backfire.
Here’s why.
The Benefits Problem
Programs like SSI and Medicaid are means-tested — your child has to have limited assets and income to qualify. If you leave money directly to your child, or name them as a beneficiary on a life insurance policy or retirement account, those funds could disqualify them from the very benefits that pay for their medical care, housing, and therapies.
The same goes for well-meaning grandparents who leave money directly to your child in their will. A gift made with love can result in months or years of lost benefits. In New York, where the cost of care and therapy services is among the highest in the country, even a modest inheritance can trigger a benefits gap that’s devastating to bridge.
This is why your family needs a different kind of plan.
The Foundation: A Special Needs Trust
A Special Needs Trust (SNT) is the cornerstone of planning for families like yours. Money held in the trust belongs to the trust — not to your child — so it doesn’t count against their eligibility for government benefits. The trustee can use those funds to cover things benefits don’t: therapies, travel, technology, education, and anything else that improves your child’s quality of life.
New York families deal with this constantly. The sibling who stayed close becomes the default caregiver, whether or not they signed up for it. The ones who left feel defensive. And the parent in the middle often doesn’t want to burden anyone, so they downplay problems until there’s a crisis nobody saw coming.
New York’s Medicaid rules are complex — here’s what families need to know.
Third-Party vs. First-Party Trusts
There are two types. A third-party SNT is funded by parents or family members and is the most common setup. A first-party SNT is used when your child receives their own assets — through an inheritance or lawsuit settlement — and comes with a Medicaid payback requirement at death. Most families are setting up a third-party trust.
In New York, there’s also an option worth knowing: the Pooled Trust, administered by nonprofit organizations. It’s a practical alternative for families who want professional management without establishing a standalone trust, and it’s widely used across the state for both third-party and first-party funds.
Choosing the Right Trustee
Choosing the right trustee matters enormously. This person needs to understand both the financial rules and your child’s life. Many families use a combination of a trusted family member and a professional co-trustee — someone who knows your child’s routine alongside someone who knows the law. In New York, professional trustees and nonprofit trust companies are regulated and widely available, which gives families more options than in many other states.
Beyond the Money: Decision-Making Authority
Money is only part of this. A complete plan also addresses who makes decisions for your child when you can’t.
When Your Child Turns 18
When your child turns 18, your legal authority as a parent ends automatically — even if your child cannot make safe or informed decisions on their own. You’ll need to put a decision-making arrangement in place before that happens. In New York, families have several options: full guardianship through Article 17-A of the Surrogate’s Court Procedure Act, limited guardianship, or supported decision-making agreements that allow your child to retain more autonomy with the backing of trusted supporters.
The right path depends on your child’s specific needs. An attorney who understands New York’s framework can help you choose what fits.
Your Letter of Intent
A Letter of Intent is equally important — and it’s not a legal document. Think of it as a detailed guide for future caregivers: your child’s routines, preferences, fears, favorite foods, medical providers, communication style. Everything someone would need to actually know your child.
It’s one of the most important things you can create. No court order, no trustee, no government program can replace the knowledge you carry about your child’s daily life. Write it down. Update it every year.
Not sure which trust is right for your family? We break it all down.
Reviewing Your Beneficiary Designations
You’ll also want to review every beneficiary designation you have — life insurance, retirement accounts, any account with a named beneficiary — and make sure funds are directed to the trust, not to your child directly.
This is a step many families miss. You can have a beautifully drafted SNT in place and completely undermine it by leaving a life insurance policy payable directly to your child. In New York, these designations override your will entirely. A single outdated form can undo years of careful planning.
Keeping It Current
A plan that isn’t maintained will fail. Laws change, benefit programs shift, your child’s needs evolve. New York’s Medicaid rules, income thresholds, and supported housing programs are updated regularly — what was true three years ago may not be true today.
This is not a one-time task. When we work together, we build a plan that gets reviewed and updated over time — because that’s the only kind that actually works.
Your life insurance policy could quietly undermine your child’s benefits.
Next Steps
We can help. If you’re ready to get started on your planning, begin by booking a Peace of Mind Planning Session. We’ll answer your questions, go over your options, and talk about our flat fees. Mention this blog and we’ll waive the $350 session fee.