Estate Planning For A Beneficiary With A Disability

Authored By: Lagniappe Law Lab
Read this in: Spanish / Español


People with a disabled child or disabled beneficiary may face challenges when it comes to estate planning and/or the disabled individual's inheritance. In situations where you wish to leave part or all of your estate to a beneficiary with a disability, it is important to understand how the inheritance can affect their public benefits. This is particularly important for beneficiaries that, due to their disability, cannot support themselves and therefore receive benefits from mean-tested programs like social security income and Medicaid. Means-tested programs require the person receiving the benefits to have less than $2,000 in their account to qualify. Inheritance can disqualify a disabled individual from means-tested programs. There are legal tools available that manage a disabled person's assets and help them keep their benefits without subjecting the person to live in poverty to qualify for benefits. This page discusses different trusts available to protect disabled persons from losing their public benefits when they inherit money and/or assets. 


What You Need To Know

  • Establishing and funding a Special Needs Trust 
    • A person under 65 years of age can inherit funds through a special needs trust without facing transfer penalties because the funds in this trust will not qualify as the disabled person’s assets and therefore will not disqualify them from their public benefits 
    • Special Needs Trusts are usually set up by hiring an experienced attorney in order to get a trust tailored to your needs
  • LA “ABLE” Account (Louisiana’s Achieving A Better Life Experience) 
    • This program is designed to allow families to save for disability-related expenses for their loved ones without disqualifying him/her from means-based public benefits 
    • ABLE accounts do not involve hiring an attorney and are favorable to those who cannot afford to pay an attorney to set up a trust for their disabled beneficiary 

Beneficiaries are the people for whose benefit the trust is established. The beneficiary of a special needs trust will usually (but not always) be disabled. While a beneficiary may also act as trustee in some types of trusts, a special needs trust beneficiary will almost never be able to act as trustee.

For most purposes involving special needs trusts, “disability” refers to the standard used to determine eligibility for Social Security Disability Insurance or Supplemental Security Income benefits: the inability to perform any substantial gainful employment.

  • If you receive public benefits from a means-tested program, you have an obligation to inform the government of any changes in your financial situation. 
  • If you have more than $2,000 in your bank account from an inheritance or personal injury settlement, you will be disqualified from means-tested program. 
  • There are rules that allow yearly donations of $13,000 or less without being taxed on this donation. However, this tax-free donation does not mean that you won’t be penalized by the public benefits program. To avoid this, you can set up a special needs trust account for the disabled individual receiving an inheritance or personal injury settlement. 
  • It is important to determine whether a special needs trust is necessary and if so, you must choose a trust option that works with your beneficiary’s specific needs.

When a beneficiary reaches the age of 18, they may meet the requirements for social security income. This means the beneficiary is also likely to be eligible for Medicaid healthcare benefits and other public benefits. These public benefits are based on the beneficiary’s financial situation. If they inherit a sum of money, this could change their financial situation making them ineligible to continue receiving mean-based program benefits.

Here are some of the major programs for government benefits available to disabled individuals: 

  • Medicaid - this provides basic medical care to low-income individuals 
  • Supplementary Security Income (SSI) - provides funding for food and housing to individuals with disabilities. To qualify, a person must have less than $2,000 worth of countable assets 
  • Supplemental Nutrition Assistance Program (SNAP) - provides food stamps and has similar eligibility requirements as SSI 
  • Section 8 Housing - subsidizes residential rents for families for low-income families, which may include those with special needs. Eligibility is based on a sliding scale that considers income and family size

Some programs (like SSDI and Medicare) do not impose financial eligibility requirements. A beneficiary receiving income and all his/her medical care from those two programs might not need a special needs trust at all, or might benefit from more flexibility given to the trustee. On the other hand, a beneficiary that is a recipient of SSI and/or Medicaid may need a Special Needs Trust put in place. A special needs trust will not replace the benefits being receiving but can help supplement what is not covered by public benefits. This can include any non-covered services or equipment.



Louisiana’s ABLE Act program provides the ability to save up to $17,000 per year for a disabled person and/or allows the disabled person to receive an inheritance without stripping them of their public benefits. Typically, any person that holds over $2,000 in their banking account will not qualify for SSI or Medicaid due to the amount limitations. The funds in this account will not disqualify the individual from means-based public benefits, whereas a normal account would disqualify the disabled individual. This includes Federal and State benefit programs, such as Social Security Income and Medicaid.

ABLE accounts are beneficial for those disabled individuals that may recover and want to avoid encumbering their money or inheritance in a trust. These accounts also benefit people who are physically disabled but mentally capable enough to control their own money without another person in control.  

What You Need To Know About LA ABLE Accounts

First, you must be a U.S. citizen, a legal resident of Louisiana, and have a valid social security number. 

Next, you must meet the following requirements: 

  • Your disability or onset of your blindness developed prior to the date of your 26th birthday AND you are eligible for Social Security Disability Income (SSDI) 

Lastly, the disabled beneficiary must have at least one of the following disabilities AND must submit, from a qualified physician, a signed copy of the diagnosis: 

  1. Developmental Disorders

    1. Autistic Spectrum Disorder

    2. Asperger’s Disorder

    3. Developmental and Learning Disabilities

  2. Intellectual Disability - May be reported as mild, moderate, or severe intellectual disability

  3. Psychiatric Disorders

    1. Schizophrenia

    2. Major depressive disorder

    3. Post-traumatic stress disorder (PTSD)

    4. Anorexia nervosa

    5. Attention deficit/hyperactivity disorder (AD/HD)

    6. Bipolar disorder

  4. Nervous Disorders

    1. Blindness

    2. Deafness

    3. Cerebral Palsy

    4. Muscular Dystrophy

    5. Spina Bifida

    6. Juvenile-onset Huntington’s disease

    7. Multiple Sclerosis

    8. Severe sensorineural hearing loss

    9. Congenital cataracts

  5. Congenital Anomalies

    1. Chromosomal abnormalities including Down Syndrome and Osteogenesis imperfecta

    2. Xeroderma pigmentosum

    3. Spinal muscular atrophy

    4. Fragile X syndrome

    5. Edwards syndrome

  6. Respiratory Disorders - Cystic Fibrosis

  7. Other

    1. Tetralogy of Fallot

    2. Hypoplastic left heart syndrome

    3. End-stage liver disease

    4. Juvenile-onset rheumatoid arthritis

    5. Sickle cell disease

    6. Hemophilia

    7. Any other disability not listed

The account owner must be the person who has the qualifying disability or must be someone who can show proof that they have the authority to act on behalf of the disabled individual. Individuals are required to submit an application to open an ABLE Account. There is no enrollment period, so these accounts may be established at any time during the year. Also, there is no application fee. 
Whether you complete the online application or a paper application, you will be required to provide certain Protected Health Information for IRS reporting purposes. This information will only be available to those staff members of LOSFA who work on your account and to the IRS when required to be reported.

There is a limit on these accounts and once the limit is met or exceeded you will be suspended from Social Security Income (SSI). The balance in an account must be less than $100,000 so the funds will not be counted as a resource for purposes of determining eligibility for SSI. The account cannot exceed $500,000 in total. If an account does meet or exceed $100,000, SSI will only be suspended. SSI will not be permanently canceled. Once the balance in the account goes below this $100,000 threshold, the SSI benefits can be reinstated.

All ABLE accounts will have an owner, a beneficiary, and an administrator. The account owner and the beneficiary will always be the same person. In some cases the administrator will be the account owner, but if the account owner is unable to manage his own affairs or is under the age of 18, the administrator will be someone else. An account administrator who is not also the disabled individual will be required to provide documentation that he/she has the legal authority to act on behalf of the account owner.

Certain people can establish an ABLE account for an account owner who is disabled and therefore cannot manage his/her own account. The documents needed to open this account will depend on your relationship with the disabled account owner. 

  • If you are a parent of the account owner, you simply must provide the birth certificate of the account owner. 

  • If you are an adoptive parent of the account owner, you must show documented evidence of the adoption of the account owner 

  • If you are a custodian of the account owner, you must show court documents showing you were appointed by the court as custodian 

  • If you were given authority by the account owner to manage his/her affairs, you must show documents that support this, such as Power of Attorney documentation

No, regardless of whether the ABLE account is established in Louisiana or another state, the account owner can only be attached to one ABLE account. 

Funds in an ABLE account can be used for qualified disability expenses (QDE). Expenses that relate to the blindness or disability of the designated beneficiary in maintaining or improving his or her health, independence, or quality of life are called qualified disability exepenses (QDE). In general, QDE’s include but are not limited to, the beneficiary’s: 

  • Education – to include Tuition for preschool to post-secondary schools
  • Housing
  • Transportation
  • Employment Training and Support
  • Assistive Technology and Related Services
  • Personal Support Services
  • Health, Prevention, and Wellness
  • Financial Management and Administrative Services
  • Legal Fees
  • Expenses for Oversight and Monitoring
  • Funeral and Burial Expenses
  • Other expenses which may be identified by the Internal Revenue Service

The Louisiana Tuition Trust Authority (LATTA) is a statutory authority whose membership consists of the Louisiana Board of Regents, plus one member from the Louisiana Bankers Association, the State Treasurer, and one member from the House of Representatives and Senate. The LATTA administers the ABLE Account Program through the Louisiana Board of Regents, Office of Student Financial Assistance (LOSFA). LOSFA, a program of the Board of Regents, performs the functions of the state relating to programs of financial assistance and certain scholarship programs for higher education in accordance with directives of its governing bodies and applicable law.

What You Need To Know About Third Party SNT

These types of trust can either be made during your lifetime for your beneficiary or can be created in your last will and testament. If a parent dies without a will or includes a trust for a disabled child that is not a Special Needs Trust, an attempt can be made to petition the court to establish a Special Needs Trust or reform a non- Special Needs Trust into a Special Needs Trust.

The main difference between a third-party trust is that it can only contain assets and funds that never belonged to the beneficiary. Whereas, a self-settled trust contains assets and funds that belong to the disabled individual. 

There are a few advantages to a third-party trust that may make it more favorable for a family member of a disabled individual. First, there is no limit to the size of the trust fund and the funds in the trust can be used for nearly anything the beneficiary may need that is not covered by their public benefits. Second, the assets in the trust can be passed to another person, such as a family member of the donor, following the death of the beneficiary. This is unique to a third-party trust and allows a donor to help a disabled beneficiary while also giving anything left in the trust to another upon the beneficiary’s death. 

No, there are no age limits for a third-party trust. Other types of special needs trusts generally only allow a donor to set up a trust for a beneficiary under the age of 65 years. 

The main drawback is that third-party trusts can never hold assets or funds that belong to the beneficiary. This means that if the beneficiary receives an inheritance from someone other than the donor and the inheritance is not directed into the special needs trust, the funds must be placed in a different type of trust that does not have the same protections as a third-party trust. 
One example of this is if the disabled person was to receive a personal injury settlement. If any of the settlement funds were placed into a third-party trust for a disabled person it will ruin the classification of the trust and then could negatively impact the beneficiary’s public benefits. 

The person who creates a special needs trust often makes the initial transfer of assets into the trust—usually, just a small amount of money. Then, commonly, a parent, grandparent, or other relative leaves property to the trust by:

  • leaving it through a will or revocable living trust directly to the trustee of the special needs trust, or
  • naming the trustee of the special needs trust as a beneficiary on a designation form that controls what happens to a deposit or brokerage account, retirement plan, or stocks and bonds

Special needs trusts are very complicated and must conform to any changes in state and/or federal law. It is important to find a Special Needs Planner who can help you draft an appropriate special needs trust. A Special Needs Planner can also assist you in understanding how a special needs trust plays into your other estate planning goals. 

Special Needs Trusts

About Special Needs Trusts

There are two very different types of special needs trusts (SNTs):

  1. “Self-Settled” or "First Party" Special Needs Trusts
  2. “Third Party” Special Needs Trusts 

About Self-Settled SNT

If a person with special needs already owns assets—such as from a personal injury award, retirement plan, life insurance policy, or an unplanned-for inheritance—that person can take steps to protect those assets through a self-settled trust, also known as a first-party trust.

A self-settled special needs trust is a trust that is usually created either by a tutor or by the courts. The assets that are a part of the trust belong to the disabled person. These SNTs are useful when a person owns assets in his or her name, later becomes disabled, and thereafter needs to qualify for public benefits that have an income or asset limitation. A common example of this type of trust is when an individual has become disabled, beings receiving SSI and/or Medicaid, and later receives a personal injury award that would disqualify them from SSI/Medicaid. This trust can contain the disabled person’s settlement money, unlike a third-party trust. Only the disabled individual can be a beneficiary of these trusts.

Disclaimer: Self-settled trusts have more restrictive rules and you will want to work with an experienced special needs attorney.

About Third Party SNT
Third-party trusts are special needs trusts that are created by someone other than the disabled person. Typically, a disabled person’s parent(s) or grandparent (s) or sibling(s) will be the third party setting up this type of trust. The assets that are a part of the trust must have never belonged to the beneficiary. Third-party trusts are a good option to hold onto inheritance for a disabled person without requiring that person to use the assets in the trust to pay back agencies like Medicaid for services previously provided. 

What You Need To Know About Self-Settled SNT

Self-settled Special Needs Trusts must contain a payback provision providing that the State Medicaid Agency must be repaid for all amounts of medical assistance paid to the beneficiary. Unfortunately, the POMS was recently amended to clarify that this language means the payback must include all medical assistance since birth, whether or not related to the injury.

Self-settle trusts must have a provision stating: 

  1. If there is anything residual in the trust following the beneficiary’s death, it must go to paying back Medicaid for anything they paid for during the lifetime of the beneficiary. 
  2. Only after this Medicaid payback may any balance be distributed to other remainder beneficiaries.

A Self-Settled SNT is funded with the property that belongs to the beneficiary, or to which the beneficiary is or becomes legally entitled. Property in a first-party SNT can only be used for the “sole benefit” of that beneficiary. This means that distributions from the trust can only be made to or for the benefit of the beneficiary. This often creates difficulty in the administration of the trust, because other family members want to benefit from trust assets.

These SNTs may be created (and funded) only for individuals who meet the government’s definition of “disabled” and are under sixty-five years of age when the SNT is established (and funded). The beneficiary of the trust must be disabled as defined by the Social Security Act.

A Self-Settled Special Needs Trust cannot be established by the individual beneficiary. If the beneficiary is a minor or incapacitated person, the court will have to approve the settlement, so the usual practice is to have the court establish the trust in those situations. If the beneficiary is a competent adult and no court approval of the settlement is required, it is usually easier to have the trust established by a parent or grandparent.

Yes, this trust is only for a beneficiary under the age of 65 years because it requires that only a person under 65 can use the funds in this type of trust.

The beneficiary must be under the age of 65. This means that at the time the trust is established and funded, the individual must be under the age of 65. Even if the trust is established prior to the beneficiary’s 65th birthday, assets cannot be transferred to the trust after age 65. The Social Security Administration has stated in its Program Operations Manual System (POMS) that, if a structured settlement is in place prior to the beneficiary turning 65 years old, payments can continue to be made from the structure to the trust after the beneficiary reaches age 65.

Last Review and Update: Mar 22, 2023
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