Strange as it may sound, an inheritance or gift from a family member may cause many problems for a person with special needs. Inheriting as little as $2,000 ($1,000 in some states) could disqualify the person with disabilities from most federal benefits, such as Supplemental Security Income (SSI) and Medicaid, and from any state programs. This can be an enormous loss since eligibility for critical services such as supported employment and vocational rehabilitation services, group housing, transportation assistance and personal attendant care could be lost.

Fortunately, a special trust called a "supplemental needs" or "special needs" trust, if worded properly, can be drafted by a qualified attorney to remedy this problem. It can mean the difference between adequate care and an independent life for someone with special needs. A trustee manages the trust on behalf of the person with the disability and is given absolute discretion to determine when and how much the person should receive. This is an important planning tool because it:

• allows other family members to leave assets such as money or property to the trust rather than directly to the person with special needs
  
  
• provides extra and supplemental care, maintenance, support and education above and beyond that which is already provided by any local, state or federal programs. The use of government benefits is very specific and it leaves out many vital items such as recreational and leisure activities, computers or even TVs

Funding the Special Needs Trust
Often, a permanent, second to-to-die life insurance policy is used to fund the trust because it provides much needed resources at a time when funds will likely be needed most — at the death of the second parent. The cost of a second-to-die policy is typically lower than that of a single life policy. Proceeds are directed to the trust.

Grandparents may consider life insurance as an effective way to allocate assets to their grandchild. Instead of designating the grandchild as beneficiary, proceeds are left to the trust.