Parents of children with disabilities carry a particular kind of worry that other estate planning conversations don't fully capture. It's not just about what happens to their assets after they die. It's about what happens to their child, for the rest of that child's life, after the people who have always been there are no longer able to be.
Standard estate planning documents are not built for this. A will that leaves money directly to a child with a disability can do more harm than good, disqualifying them from the government benefits they depend on, sometimes permanently. Getting this right requires a specific kind of planning, and the stakes of getting it wrong are too high to leave to a generic template.
Why Special Needs Planning Requires a Different Approach
Most estate planning is built around a straightforward goal: get assets to the right people as efficiently as possible. Special needs planning has an additional constraint that changes everything: many government benefit programs have strict asset and income limits, and an inheritance that puts a beneficiary over those limits can disqualify them from benefits they rely on for housing, healthcare, and daily support.
Medicaid, the primary source of healthcare coverage for many people with disabilities in New Mexico, has an asset limit for individuals. Supplemental Security Income (SSI), which provides monthly income for people with disabilities who have limited resources, has its own asset limit. These thresholds are low enough that even a modest inheritance can push a beneficiary over the limit.
When that happens, the beneficiary may be required to spend down the inherited assets before regaining eligibility. The assets intended to improve their life may instead be consumed reestablishing the baseline they already had.
Special needs planning works around this by structuring assets in a way that doesn't count toward benefit eligibility, while still making those assets available to improve the beneficiary's quality of life.
The Core Risk: How an Inheritance Can Disqualify a Beneficiary
The most common mistake New Mexico families make in this area is leaving assets directly to a child or family member with a disability, either through a will, as a named beneficiary on a life insurance policy, or through a retirement account designation.
When assets pass directly to an SSI or Medicaid recipient, those assets become countable resources in most circumstances. If the total exceeds the applicable limit, the individual may lose benefit eligibility until the excess is spent down.
This problem is not limited to large estates. A life insurance policy of $50,000, a retirement account of $75,000, or a modest inheritance from a grandparent can each trigger a loss of benefits if received directly. And the loss of Medicaid coverage, in particular, can be catastrophic for someone whose medical and support needs are significant.
A special needs trust exists specifically to receive and hold assets for a person with a disability without triggering this disqualification. The trust owns the assets, not the beneficiary, which means they generally do not count toward benefit eligibility limits.
What Is a Special Needs Trust in New Mexico?
A special needs trust, sometimes called a supplemental needs trust, is a legally structured trust designed to hold assets for the benefit of a person with a disability while preserving their eligibility for means-tested government benefit programs. The trust is drafted specifically to supplement, not replace, the benefits the individual receives.
New Mexico recognizes special needs trusts under both state law and federal law, including the federal Special Needs Trust Fairness Act. The specific type of trust used depends on who is funding it.
Third-Party Special Needs Trusts
A third-party special needs trust is funded with assets belonging to someone other than the beneficiary, most commonly parents, grandparents, or other family members. This is the most common type used in estate planning for a child with a disability.
A parent who wants to leave assets for a child with a disability establishes a third-party SNT, either as a standalone trust or as a testamentary trust within their will. Assets pass into the trust at the parent's death rather than directly to the child. The trustee manages and distributes those assets according to the trust's terms, supplementing the child's government benefits without replacing them.
A significant advantage of the third-party SNT is that there is no Medicaid payback requirement at the beneficiary's death. Any assets remaining in the trust when the beneficiary dies can pass to other family members or to charity, according to the trust's terms.
First-Party (Self-Settled) Special Needs Trusts
A first-party special needs trust, sometimes called a (d)(4)(A) trust after the federal statute that authorizes it, is funded with assets belonging to the beneficiary themselves. This type of trust is typically used when a person with a disability receives a personal injury settlement, an inheritance received before a trust was established, or other assets in their own name.
First-party SNTs must be established by a parent, grandparent, legal guardian, court, or the individual themselves under the Special Needs Trust Fairness Act, and must be for the benefit of a person under 65 who has a disability. A critical distinction from third-party trusts: at the beneficiary's death, the trust must reimburse the state Medicaid program for benefits paid on behalf of the beneficiary before any remaining assets pass to other beneficiaries.
Pooled Special Needs Trusts
A pooled special needs trust is administered by a nonprofit organization that manages a pool of funds from multiple beneficiaries. Individual beneficiaries have their own accounts within the pool, but the assets are invested collectively. Pooled trusts can be established by the beneficiary directly, which makes them available in situations where a first-party SNT would otherwise require court involvement.
In New Mexico, pooled trusts are available through several nonprofit organizations. They can be a practical option for families who do not have a suitable individual trustee or whose trust assets are modest enough that professional individual trust management would be disproportionately expensive.
What Can a Special Needs Trust Pay For?
A properly drafted special needs trust is designed to supplement government benefits, not replace them. That means trust distributions should cover expenses that government programs do not pay for, while avoiding payments that could be considered in-kind support and maintenance (ISM), which can reduce SSI benefits.
Examples of what a special needs trust can typically pay for include:
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Education and tutoring
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Recreational activities and vacations
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Technology, including computers, tablets, and specialized communication devices
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Personal care items not covered by Medicaid
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Transportation and vehicle expenses
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Hobbies, entertainment, and cultural experiences
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Home furnishings and modifications
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Dental and medical care beyond what Medicaid covers
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Clothing and personal items
A special needs trust generally should not make direct cash payments to the beneficiary or pay for food and shelter, as these payments may reduce SSI benefits. The trust's terms and the trustee's distributions need to be carefully managed to avoid inadvertently affecting the beneficiary's benefit eligibility.
ABLE Accounts in New Mexico
An ABLE account (Achieving a Better Life Experience) is a tax-advantaged savings account available to people with disabilities whose disability began before age 26. ABLE accounts were created by federal law and are available in New Mexico through the state's NM ABLE program.
ABLE accounts offer several advantages for families engaged in special needs planning:
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Funds in an ABLE account up to a specified limit generally do not count as a resource for SSI and Medicaid purposes
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Contributions can come from the account owner, family members, or others
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Earnings in the account grow tax-free when used for qualified disability expenses
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Qualified disability expenses are broadly defined and include education, housing, transportation, employment support, health care, and financial management
ABLE accounts work best as a complement to a special needs trust rather than a replacement. The contribution limits on ABLE accounts are relatively modest, and the SSI resource exclusion applies only up to a certain account balance. For families with significant assets to pass to a child with a disability, a special needs trust remains the primary planning vehicle.
Choosing a Trustee for a Special Needs Trust
Trustee selection is one of the most consequential decisions in special needs planning. A special needs trust trustee must understand both the trust's distribution standards and the benefit programs the beneficiary relies on. A well-intentioned trustee who makes the wrong kind of distribution can inadvertently reduce the beneficiary's SSI or trigger a Medicaid issue.
Good trustee candidates for a special needs trust have several characteristics:
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Familiarity with or willingness to learn about SSI, Medicaid, and other benefit programs
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Financial literacy and the ability to manage investments and record-keeping
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Knowledge of the beneficiary's needs, preferences, and life circumstances
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Longevity: a special needs trust may need to operate for decades, potentially long after the beneficiary's parents are gone
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Trustworthiness and genuine concern for the beneficiary's wellbeing
Many families name a family member as trustee initially, with a professional fiduciary or corporate trustee as a successor or co-trustee. This approach balances the personal knowledge a family member brings with the professional capacity a corporate trustee provides for long-term administration.
Letter of Intent: The Document No One Talks About
A letter of intent is not a legal document. It has no binding effect. But for families engaged in special needs planning, it may be the most important thing they write.
A letter of intent is a detailed personal document that describes your child: their daily routine, their medical history and current providers, their communication style, their likes and dislikes, their behavioral triggers and what helps de-escalate them, their relationships, their hopes, and your vision for their life. It is addressed to whoever will be caring for your child after you are gone.
No trust document can capture this. A trustee who receives a well-written letter of intent arrives at their role with a level of understanding that would otherwise take years to develop. For a successor trustee who didn't know your child before taking on the role, it can be the difference between adequate care and genuinely good care.
A letter of intent should be updated regularly as your child grows and their needs, preferences, and circumstances change. It should be stored with your estate planning documents and shared with the trustee, the successor guardian, and any other key people in your child's life.
At Genus Law Group, we encourage every family doing special needs planning to write one.
How Genus Law Group Can Help
Special needs planning requires attorneys who understand the intersection of estate planning, government benefits, and the deeply personal circumstances of each family's situation. At Genus Law Group, we take the time to understand your child, your family structure, and your goals before recommending a plan.
We help New Mexico families establish third-party special needs trusts, coordinate ABLE account strategies, select and instruct trustees, and integrate special needs planning into a complete estate plan that protects everyone in the family.
We serve clients throughout New Mexico from our offices in Albuquerque and Las Cruces.
Albuquerque: (505) 317-4455
Las Cruces: (575) 215-3500
genuslawgrp.com
Frequently Asked Questions
Can I just leave money to my other child with instructions to use it for my disabled child?
This approach is not recommended and is not a substitute for a special needs trust. The sibling who receives the funds owns them outright and can use them for any purpose. They may face their own financial difficulties, divorce, creditor claims, or death that puts the funds at risk. There is no legal obligation to use the funds as instructed, and no protection if they don't.
Does a special needs trust affect Medicaid eligibility?
A properly drafted third-party special needs trust generally does not affect Medicaid eligibility because the trust assets belong to the trust, not the beneficiary. However, trust distributions must be managed carefully. Distributions for food and shelter can count as in-kind support and maintenance and may reduce SSI benefits. Working with an attorney experienced in special needs planning and keeping the trustee informed of benefit program rules is essential.
What happens to the special needs trust when my child dies?
For a third-party special needs trust, the remaining assets pass to whoever is named as the remainder beneficiary in the trust document, which may be other children, grandchildren, or a charitable organization. There is no Medicaid payback requirement for third-party trusts. For a first-party self-settled special needs trust, any remaining assets must first be used to reimburse the state Medicaid program for benefits paid before any remainder passes to other beneficiaries.
Can a special needs trust be set up for an adult child?
Yes. A special needs trust can be established for a beneficiary of any age, as long as the beneficiary has a qualifying disability. Many families establish special needs trusts for adult children who have been living with a disability for years. The planning considerations are similar regardless of the beneficiary's age, though the timing of the trust's establishment and funding may differ.
What is the difference between a special needs trust and a guardian?
A guardian is a person appointed by a court to make personal and sometimes financial decisions for someone who lacks capacity to make those decisions themselves. A special needs trust is a financial planning tool that holds and manages assets for a beneficiary with a disability. Many individuals with disabilities have both: a guardian who makes personal decisions and a trustee who manages trust assets. Genus Law Group can help families think through both.
