Raising a child with a disability means thinking about their future in ways most parents never have to. Who will care for them when you're gone? How will their needs be paid for? Will they lose their benefits if they inherit money? These are not hypothetical questions — they are practical legal problems that require careful, specific planning.

The good news is that Arkansas families have effective legal tools to address all of these concerns. The challenge is that standard estate planning — a basic will, beneficiary designations, a simple trust — often fails families with special needs children in ways that aren't obvious until it's too late. This article explains what's different, what's at stake, and what a proper plan looks like.

The Core Problem with Standard Estate Plans

Most estate plans are designed to transfer assets to beneficiaries as efficiently as possible. For a child without a disability, leaving them an inheritance outright — or through a simple trust — is perfectly fine. For a child who receives government benefits based on financial need, it can be catastrophic.

Many adults with disabilities receive Supplemental Security Income (SSI) and Medicaid — two programs that provide critical income support and healthcare coverage. Both are means-tested, meaning eligibility depends on the beneficiary having limited financial resources. In most cases, an individual receiving SSI cannot have more than $2,000 in countable assets.

If your child inherits money directly — from your estate, from a life insurance policy, from a retirement account — that inheritance counts as their asset. Even a modest inheritance can push them over the limit and cause them to lose their SSI and Medicaid immediately. They would then have to spend down the inherited funds before requalifying — often on the very care that Medicaid would have covered for free.

Which Benefits Are at Risk

Supplemental Security Income (SSI)

SSI is a federal program that provides monthly income to individuals with disabilities who have limited income and resources. It has strict asset limits — generally $2,000 for an individual. An inheritance, settlement, or gift that pushes a recipient over this limit can terminate their SSI, sometimes immediately.

Medicaid

Medicaid provides healthcare coverage for individuals with disabilities, often including services that go far beyond what private insurance covers — long-term care, in-home support services, therapies, equipment, and more. In Arkansas, Medicaid eligibility is often tied to SSI eligibility, so losing SSI frequently means losing Medicaid as well. For many individuals with significant disabilities, Medicaid is not just helpful — it is essential to their ability to live safely.

Other programs

Depending on your child's situation, they may also rely on housing assistance, supported employment programs, or other state and federal services with income and asset requirements. A proper special needs plan takes all of these into account.

What a Special Needs Trust Does

A Special Needs Trust (SNT) — sometimes called a supplemental needs trust — is a specific type of trust designed to hold assets for a person with a disability without those assets counting against their benefit eligibility. The trust is a legal entity that owns the assets; the beneficiary does not own them directly and therefore they do not count as the beneficiary's resources for purposes of SSI or Medicaid.

Done correctly, an SNT allows your child to receive financial support from the trust — for things Medicaid and SSI don't cover — while keeping their government benefits intact. The trust supplements their benefits; it doesn't replace them.

Third-Party Special Needs Trusts

A third-party SNT is funded with assets that belong to someone other than the beneficiary — typically a parent, grandparent, or other family member. This is the most common tool used in estate planning for families with special needs children, and it is the type of trust most parents need.

Key features of a third-party SNT:

• Can be created during your lifetime (a stand-alone trust) or through your will or living trust (a testamentary trust)
• Funded with your assets — life insurance proceeds, retirement accounts directed to the trust, estate assets, or gifts from other family members
• Does not require a Medicaid payback provision — when your child passes away, any remaining funds can go to other family members, charities, or whoever you designate
• Provides ongoing, flexible support for your child's lifetime without affecting their benefits

A third-party SNT is the foundation of estate planning for most families with a child who has a disability. It is what allows you to leave your child a meaningful inheritance without jeopardizing the benefits that sustain their daily life.

First-Party Special Needs Trusts

A first-party SNT — also called a self-settled trust or d4A trust, after the federal statute that authorizes it — is funded with assets that belong to the beneficiary themselves. Common situations include a personal injury settlement paid directly to the individual, an inheritance that was received outright before a trust was in place, or back pay from Social Security disability benefits.

Key features of a first-party SNT:

• Must be established before the beneficiary turns 65
• Must be established by a parent, grandparent, guardian, or court
• Required by federal law to include a Medicaid payback provision — at the beneficiary's death, any funds remaining in the trust must first reimburse the state for Medicaid services provided during the beneficiary's lifetime
• In Arkansas, court approval is often required when funded with settlement proceeds for a minor or incapacitated adult

First-party trusts are more complex and less flexible than third-party trusts, but they are an important tool when assets have already been received by the beneficiary and benefits need to be preserved.

What an SNT Can and Cannot Pay For

Understanding what a Special Needs Trust can appropriately pay for is critical — for the trustee, and for the family members who fund it. The goal is to enhance the beneficiary's quality of life without providing things the government is already obligated to provide.

Generally appropriate SNT expenditures

• Education, training, and tutoring
• Recreational activities, hobbies, and entertainment
• Technology — computers, tablets, communication devices
• Transportation and vehicle modifications
• Travel and vacations
• Personal care items beyond what Medicaid covers
• Therapies not covered by Medicaid
• Furniture and household items for a personal residence
• Clothing and personal goods
• Legal fees and advocacy services

Expenditures that can reduce or eliminate benefits

• Direct cash payments to the beneficiary
• Payment of rent or mortgage (this can reduce SSI dollar-for-dollar in some cases)
• Food (paying for food from the trust can reduce SSI payments)
• Medical care that Medicaid is obligated to cover

Choosing a Trustee for a Special Needs Trust

The trustee of a Special Needs Trust carries significant responsibility. They must manage and invest the trust assets, make distribution decisions that comply with complex benefit rules, keep detailed records, file annual tax returns for the trust, and serve the beneficiary's best interests — often for decades.

This is not a role for just anyone. A trustee who doesn't understand SSI and Medicaid rules, or who makes well-intentioned but legally incorrect distributions, can cause the beneficiary to lose their benefits. Key qualities to look for in a trustee include:

• Financial competence and trustworthiness
• Familiarity with or willingness to learn the rules governing public benefits
• A genuine understanding of and commitment to the beneficiary's wellbeing
• The availability and organizational ability to handle ongoing administrative duties
• Longevity — this role may last decades

Many families name a trusted family member as trustee and pair them with a professional co-trustee or advisor for the benefits-compliance piece. Others use a professional trustee — a bank trust department or a nonprofit that specializes in special needs trusts — particularly when no family member is suited for the role or when there may be family conflict.

Always name a successor trustee in case your primary trustee is unable or unwilling to continue.

The Letter of Intent

A letter of intent is not a legal document — but it may be the most important thing you write for your child. It is a detailed, personal document that tells future caregivers and trustees everything they need to know about your child: their daily routine, their likes and dislikes, their communication style, their medical history and medications, their relationships, their fears, their joys, and your vision for their life.

A trustee or caregiver who has never met your child will rely on this document to make decisions in your child's best interest. A Special Needs Trust without a letter of intent leaves that trustee to figure out on their own what your child needs and wants. A well-written letter of intent gives them a roadmap.

I encourage every family with a special needs child to write a letter of intent — even before the legal documents are finished. It is something only you can write, and it may be the most lasting gift you give your child.

Guardianship and Your Child's Future

For children with significant cognitive or developmental disabilities, the transition to adulthood — specifically, to age 18 — creates an important legal gap. When your child turns 18, they become a legal adult. Unless a guardianship is established, you lose the automatic legal authority to make decisions on their behalf: medical decisions, financial decisions, educational decisions.

Many families are surprised to learn that a parent has no automatic legal authority to consent to their adult child's medical treatment, access their medical records, or manage their finances — even if that child has a significant intellectual disability and has always lived at home.

If your child will need ongoing decision-making support as an adult, a guardianship of the person and estate may be appropriate. I handle guardianship proceedings for adult children with disabilities and can help your family understand the options and the process. In some cases, less restrictive alternatives — like a supported decision-making agreement or a limited guardianship — may be more appropriate than a full guardianship.

Life Insurance Considerations

Life insurance is often the primary way parents fund a Special Needs Trust. The trust is named as the beneficiary of the policy — not the child directly — so the proceeds flow into the trust at your death and are then managed by the trustee for your child's benefit.

This is a critical detail. If you name your child with a disability directly as the beneficiary of your life insurance policy, the proceeds will be paid to them outright and will likely disqualify them from SSI and Medicaid. Naming the trust as beneficiary avoids this entirely.

When considering how much coverage to buy, think about the cost of the care and support your child will need over their lifetime — including housing, therapy, transportation, recreational activities, and other needs that government programs may not fully cover. This is a significant number for many families, and life insurance is one of the most cost-effective ways to fund it.

Talking to Your Other Children

If you have other children without disabilities, your estate plan needs to address them clearly — and you need to have honest conversations with them about your intentions and your expectations.

Many parents leave a larger share of their estate to the Special Needs Trust for their child with a disability, recognizing that their other children will be able to support themselves in ways their sibling cannot. This is a reasonable and loving choice — but it can create resentment if siblings don't understand the reasoning behind it.

It's also worth having a frank conversation with the siblings you're considering naming as trustee. Managing a Special Needs Trust is a significant, long-term commitment. Siblings who take on this role often do so with love — but they deserve to understand what they're agreeing to, and they deserve to be supported in that role rather than left to figure it out alone.

Common Mistakes Families Make

• Naming the child directly as a beneficiary — on a will, life insurance policy, retirement account, or any other asset. This is the most common and most costly mistake.
• Using a generic trust from a will kit or online form — A standard testamentary trust is not a Special Needs Trust. The language must be specific and carefully drafted to preserve benefit eligibility.
• Not updating the plan after the child turns 18 — The legal landscape changes significantly at 18. Guardianship, benefit programs, and trust administration all need to be revisited.
• Failing to coordinate with extended family — Grandparents and other relatives who don't know about the SNT may leave assets directly to your child with the best of intentions, causing a benefits loss.
• Choosing a trustee without understanding what the role requires — A well-meaning but uninformed trustee can do real harm.
• Not having a letter of intent — The legal documents tell the trustee what they can do. The letter of intent tells them what they should do.
• Waiting too long — The time to plan is before a crisis. A Special Needs Trust cannot be created after the parent has passed away — it must be done while the parent is alive and has legal capacity.