FAQ: Special Needs Estate Planning in Vermont
Planning for a family member with a disability requires a different approach than standard estate planning. The stakes are high: a well-meaning inheritance can unintentionally disqualify your loved one from the government benefits they depend on.
These are the questions Attorney Nicole McPhee most commonly hears from Vermont families navigating special needs planning. Whether your loved one is a minor child or an adult, the answers below will help you understand what is at risk and what is possible. A Peace of Mind Planning Session is the best next step.
What is a special needs trust and why do I need one?
A special needs trust, also called a supplemental needs trust, is a legal structure that holds assets for a person with a disability without disqualifying them from government benefit programs like Medicaid and Supplemental Security Income (SSI).
Without a special needs trust, leaving assets directly to a person with a disability, even with the best intentions, can push them over program asset limits and cause them to lose essential benefits they depend on for healthcare, housing, and income support.
What is the difference between a third-party special needs trust and a first-party trust?
A third-party special needs trust is funded with assets belonging to someone other than the beneficiary, typically a parent, grandparent, or other family member. This is the most common type used in estate planning.
• Assets in the trust do not count toward Medicaid or SSI asset limits.
• No Medicaid payback requirement. When the beneficiary passes away, remaining assets go to your chosen remainder beneficiaries, not the state.
• Other family members can contribute to it through their own estate plans.
• It can be structured within your overall estate plan.
A first-party special needs trust is funded with assets that belong to the person with a disability themselves, such as a personal injury settlement or an inheritance that was received directly. This type of trust does require Medicaid payback at the beneficiary's death.
If I leave money directly to my child with a disability, what actually happens?
In Vermont, SSI recipients are generally limited to $2,000 in countable assets. If your child receives a direct inheritance, even a modest one, that pushes them over this threshold, they can lose their SSI payments and potentially their Medicaid coverage until those assets are spent down. This can happen within months of receiving the inheritance.
A third-party special needs trust holds the assets in a way that does not count toward these limits, protecting both the inheritance and the benefits your loved one depends on.
Can grandparents, aunts, uncles, or other family members contribute to the trust?
Yes, and this is one of the most valuable features of a third-party special needs trust. Other family members can contribute to the trust directly or through their own estate plans without triggering benefit disqualification.
Attorney McPhee can help coordinate this across generations so that everyone in the family who wants to provide for your loved one is doing so in a way that actually helps rather than accidentally harms.
What can a special needs trust pay for?
A special needs trust is designed to supplement, not replace, government benefits. It can pay for things that Medicaid and SSI do not cover.
• Education, tutoring, and job training.
• Therapies not covered by Medicaid, including speech, occupational, physical, and behavioral therapy.
• Transportation and vehicle-related expenses.
• Technology and adaptive equipment.
• Recreation, travel, and entertainment.
• Personal care items and clothing.
• Companion services and social activities.
• Anything that enhances quality of life beyond what government programs provide.
Who should I name as trustee of a special needs trust?
The trustee manages the trust, makes distribution decisions, and is responsible for ensuring the trust stays in compliance with benefit program rules. Options include a trusted family member, a close friend, a professional fiduciary, or a corporate trustee such as a bank trust department. The right choice depends on your family's situation.
Attorney McPhee also strongly recommends naming one or more successor trustees, people who step in if the original trustee is unable to continue, to ensure continuity of care no matter what happens.
What happens to the trust when the beneficiary passes away?
With a third-party special needs trust, you designate remainder beneficiaries, other family members or a charity, who receive whatever is left in the trust when the beneficiary passes away. There is no Medicaid payback requirement for this type of trust.
This is a significant advantage over a first-party trust, which does require repayment to the state for Medicaid benefits received during the beneficiary's lifetime.
We already have a will. Isn't that enough?
Almost certainly not, if you have a family member with special needs. A standard will leaves assets outright to named beneficiaries, which can immediately disqualify a person with a disability from means-tested benefit programs. A special needs trust must be incorporated into your plan.
Attorney McPhee also reviews beneficiary designations on life insurance policies and retirement accounts, which pass outside the will entirely. If these accounts name the person with a disability directly, the funds bypass the trust and could trigger the same benefit disqualification.
My child with special needs is still a minor. When should I start planning?
As soon as possible, ideally now, regardless of your child's age. If something happened to you today without a plan in place, assets could pass directly to your child and disqualify them from benefits before anyone realizes the problem.
For families with minor children, the plan also needs to address guardianship, specifically who raises your child if both parents are gone, and successor guardianship. Life insurance is also often a critical funding tool for families who have not yet accumulated significant assets.
Attorney McPhee helps families think through all of these pieces in a coordinated way.
My child with special needs just turned 18. What changes legally?
Significant things change at 18. Under Vermont law, your child is now legally an adult, regardless of their disability. You no longer automatically have the legal authority to make medical, financial, or personal decisions on their behalf.
If your child lacks the capacity to make these decisions independently, you may need to petition the Vermont probate court to establish guardianship. If they retain some capacity, less restrictive alternatives, such as a supported decision-making agreement or a durable power of attorney, may be appropriate.
Attorney McPhee helps families navigate this transition thoughtfully.
What is a guardian, and how is it different from a trustee?
These are two separate roles that are both important in special needs planning.
Guardian
A guardian is a person appointed, either in your will or by a court, to make personal decisions for someone who cannot make them independently: where they live, what medical care they receive, and their daily activities.
Trustee
A trustee manages the financial assets held in the trust and makes distribution decisions. These roles can be held by the same person or by different people, depending on what works best for your family.
Attorney McPhee helps you think through both appointments carefully.
Can I name a successor guardian in case my first choice is unable to serve?
Yes, and this is strongly recommended. If your named guardian is unable or unwilling to serve when the time comes, having a successor guardian named in your plan ensures there is no gap in care or need for court intervention.
This is one of the most important decisions in any special needs estate plan, and Attorney McPhee walks families through it with care.
Do I need to coordinate my estate plan with other professionals?
In some cases, yes. Special needs planning can intersect with financial planning, disability benefits counseling, and coordination with care providers. When it makes sense for your situation, Attorney McPhee can work alongside financial advisors, disability advocates, or benefits counselors to ensure your legal plan fits within your family's broader strategy.
Attorney McPhee will let you know if she believes outside coordination would strengthen your plan.
How does Vermont law affect special needs planning?
Vermont's trust laws and probate court system provide a strong framework for special needs planning. Vermont Medicaid rules, SSI asset limits, and guardianship procedures all have specific requirements that must be accounted for in the plan.
Attorney McPhee has over 30 years of experience working within Vermont's specific legal framework and ensures every plan she drafts reflects current state law.
What areas of Vermont does Attorney McPhee serve?
Will and Trust Planning serves all of Vermont. In-person meetings are available in Rutland, Vermont, and virtual meetings via Zoom are available for clients throughout the state, including Rutland County, Windsor County, Bennington County, and beyond.
Schedule Your Peace of Mind Planning Session
Special needs estate planning requires individualized attention. Every family's situation is different, and the right plan depends on the specific person, their disability, their benefit programs, the family's assets, and everyone's long-term goals. A Peace of Mind Planning Session with Attorney Nicole McPhee is a working meeting, not a sales call. We review your situation, explain your options clearly, and build a plan designed around your family's real needs.
Contact Will and Trust Planning Today
For personalized advice on estate planning, including strategies to minimize or avoid probate, contact Will and Trust Planning today. Our experienced estate planning attorneys can help you understand your options, draft essential documents, and create a plan that protects your assets and achieves your goals.