Updated February 2026
If you are raising a child with special needs, you already know that your financial planning challenges are unlike anyone else’s. The stakes are higher. The timeline is longer. And the cost of getting it wrong can be catastrophic, not just financially, but for the quality of life of the person you love most.
This guide is designed to help families cut through the complexity and build a clear, current, and actionable financial plan. From preserving government benefits to navigating the landmark ABLE Age Adjustment Act changes taking effect in 2026, we cover what matters most so you can plan with confidence.
At MJT & Associates, we bring both professional expertise and personal commitment to this work. Mitchell J. Thompson holds the Chartered Special Needs Consultant (ChSNC®) designation and has co-founded a nonprofit supporting special needs programs. This is not just a service line for us. It is a mission.
Why Special Needs Financial Planning Is Different
Traditional financial planning assumes a relatively predictable arc: earn, save, retire. Special needs planning does not fit that mold. Families typically face:
- Lifetime care costs that can extend decades beyond the parents’ own retirement
- Strict asset and income limits tied to government benefit eligibility
- The dual challenge of funding their child’s needs while still saving for their own retirement
- Complex legal structures, from Special Needs Trusts to guardianship, that must be set up and maintained correctly
A misstep in any of these areas, such as a well-meaning inheritance left directly to a child with disabilities, can disqualify them from SSI and Medicaid in an instant. Planning is not optional. It is protective.
Step 1: Understand and Protect Government Benefits
The foundation of most special needs financial plans is preserving eligibility for two critical programs.
Supplemental Security Income (SSI)
SSI provides monthly income assistance for individuals with disabilities who have limited income and resources. As of 2025, eligibility requires countable assets below $2,000 for an individual. This limit has not been updated since 1989, which means that even modest inheritances, gifts, or savings in the child’s name can trigger disqualification. Every dollar above the limit in the wrong account is a potential problem.
Medicaid
Medicaid provides health coverage and often funds home and community-based services, therapies, and long-term supports that private insurance will not cover. Like SSI, Medicaid is means-tested. Improperly titled assets or trust distributions that replace rather than supplement government benefits can jeopardize eligibility.
One important update: as of September 30, 2024, the Social Security Administration no longer counts free food as unearned income for SSI recipients. This change expands what family members and caregivers can provide without triggering a benefit reduction.
Step 2: Establish a Special Needs Trust
A Special Needs Trust (SNT) is the cornerstone legal tool for families planning for a child or loved one with disabilities. When properly drafted and administered, it allows you to set aside funds to enhance your loved one’s quality of life without disqualifying them from SSI or Medicaid.
What an SNT Can Fund
Trust distributions must supplement, not replace, government benefits. Appropriate uses typically include:
- Education, enrichment, and vocational training
- Assistive technology, adaptive equipment, and home modifications
- Recreation, travel, and social activities
- Medical and dental care beyond Medicaid coverage
- Transportation and personal care attendants
2025 Updates: What Has Changed for Trusts
Recent guidance has placed greater emphasis on trustee documentation and recordkeeping. Trustees (whether a parent, sibling, or professional) are now expected to maintain detailed records of every distribution, log decision-making rationale, and keep annual budgets. Casual trust management is no longer sufficient and can result in benefit suspension if an audit or review uncovers undocumented distributions.
Additionally, if your trust was drafted before 2025, it may need to be reviewed. Changes in how Medicaid and SSI interact with trust distributions mean that older language may no longer be compliant with current standards. We recommend reviewing existing trust documents with an attorney who specializes in special needs planning.
One practical tip: instruct family members and friends to leave gifts and inheritances to the trust, never directly to the individual with disabilities. A single well-intentioned bequest in the wrong name can undo years of careful planning.
Step 3: Open an ABLE Account (Major Changes in 2026)
ABLE accounts (Achieving a Better Life Experience) are tax-advantaged savings accounts for individuals with qualifying disabilities. They function similarly to 529 college savings plans, with one critical distinction: funds can be used for a broad range of qualified disability expenses, and up to $100,000 in ABLE savings does not count against the SSI resource limit.
2025 and 2026 ABLE Account Highlights
- Annual contribution limit: $19,000 in 2025 (subject to IRS gift tax limits)
- ABLE to Work: Account owners who are employed and not participating in an employer retirement plan may contribute up to an additional $14,580 annually above the standard limit
- Starting in 2026: ABLE account contributors who are account owners can qualify for the Saver’s Credit on their tax return, and funds from a 529 college savings plan can be rolled into an ABLE account without tax penalties
- State plan limits range from $235,000 to over $596,000, with an average balance limit of approximately $450,000 across all plans
The ABLE Age Adjustment Act: A Game-Changer Effective January 1, 2026
This is the most significant change to the ABLE program since its creation. Beginning January 1, 2026, eligibility expands to individuals whose disability onset occurred before age 46, up from the previous limit of age 26. This change is expected to make approximately 6 million additional Americans eligible, including those who acquired disabilities through accidents, illness, military service, or degenerative conditions.
If you or an adult family member with a disability was previously ineligible because their disability began after age 26, now is the time to research state ABLE plans, gather disability documentation, and coordinate with a financial advisor before opening an account.
Using an ABLE Account Alongside a Special Needs Trust
These two tools work well together. A trust can deposit funds directly into an ABLE account to cover shelter expenses without triggering SSI reductions that would otherwise occur from direct trust distributions for housing. ABLE accounts also offer more flexibility and lower cost than a trust for smaller, day-to-day purchases, with many plans offering a debit card feature for easy access.
Step 4: Build Your Legal and Estate Planning Foundation
Financial planning and legal planning are inseparable in the special needs context. The documents below form the backbone of a complete plan.
Guardianship and Supported Decision-Making
When a child with disabilities reaches adulthood, parents lose automatic legal authority to make medical and financial decisions on their behalf. Guardianship formalizes that authority through the courts. However, full guardianship is not always the right answer. Many states now recognize alternatives such as limited guardianship or supported decision-making agreements, which preserve more autonomy for the individual while still providing legal protections. These alternatives should be carefully evaluated in light of your loved one’s specific abilities and needs.
Will and Beneficiary Designations
Your will should name the Special Needs Trust as the beneficiary for any assets intended to support your child, not the child directly. Similarly, all life insurance policies, retirement accounts, and other accounts with beneficiary designations should be reviewed to ensure they align with your plan. A single outdated beneficiary designation can undermine your entire strategy.
The Letter of Intent: Your Most Personal Planning Document
A Letter of Intent (LOI) is not legally binding, but it may be the most important document in your planning binder. It is a detailed, personal guide written by you for future caregivers and trustees, covering everything a legal document cannot: your child’s daily routines, medical history, preferences, communication styles, social connections, and your long-term vision for their life.
Think of it as the detailed instructions you’d leave for a caregiver if you were going away for a month, with everything from medication schedules to favorite Saturday activities to the names and numbers of trusted doctors and friends. A well-written LOI gives future trustees the context they need to make distributions that genuinely support quality of life, not just technically comply with trust language.
Update it at least once a year. Your child grows and changes, and the letter should reflect who they are right now. We recommend scheduling this review on your child’s birthday or at tax season, when you are already gathering important documents.
For more on the full set of documents every family should have in place, see our article on The Legacy Planning Checklist: 7 Documents You Can’t Ignore.
Step 5: Plan Your Own Financial Security Too
One of the most common mistakes we see is parents who pour everything into their child’s care at the expense of their own financial health. But if you run out of resources, you lose the ability to care for them at all. A sustainable special needs plan has to account for both.
Continue contributing to retirement accounts. Do not sacrifice your 401(k) or IRA. Your retirement savings are not counted as assets for your child’s benefit eligibility, and they protect your long-term ability to contribute to their care.
Review your life insurance. A life insurance policy with the Special Needs Trust as beneficiary is often the most efficient way to fund the trust at death. Work with your advisor to determine the right coverage amount based on projected lifetime care costs.
Plan for your own disability. If you become unable to work, a disability insurance policy can protect your income and your ability to continue funding your child’s trust and ABLE account.
Coordinate with siblings. If you have other children, make sure your estate plan treats them fairly while also protecting your child with special needs. Many families use separate trusts, equalization language, or explicit conversations to prevent conflict later.
A holistic financial plan that integrates your retirement, insurance, tax strategy, and estate plan is the only way to truly protect your family on both sides of this equation. We explore this approach in more depth in The Benefits of a Holistic Financial Planner.
Step 6: Keep the Plan Current
Special needs planning is not a one-time task. Laws change, benefit rules evolve, and your loved one’s needs shift over time. We recommend an annual review that covers:
- ABLE account contribution levels and investment allocation
- Trust compliance with current Medicaid and SSI rules
- Beneficiary designations on all accounts and policies
- Guardianship documents and whether they still meet current statutory requirements
- Your Letter of Intent and whether it reflects your loved one’s current life
Frequently Asked Questions
Q1: If my child receives an inheritance directly, will they lose SSI and Medicaid?
Almost certainly, at least temporarily. Any inheritance that pushes countable assets above $2,000 will disqualify your child from SSI until the excess is spent down or redirected. Medicaid eligibility follows similar rules. This is exactly why it is critical to have a Special Needs Trust in place and to communicate clearly with family members about directing gifts and bequests to the trust rather than to the individual.
Q2: Who should be the trustee of my child’s Special Needs Trust?
This is one of the most important decisions in the planning process. Options include a trusted family member, a professional trustee (such as a bank trust department or special needs trust company), or a nonprofit pooled trust. Each has tradeoffs around cost, familiarity with your child, and administrative capability. Many families choose a family co-trustee alongside a professional trustee to combine personal knowledge with institutional accountability. Whoever you choose, ensure they understand the strict rules around distributions that protect government benefit eligibility.
Q3: My child is 30 years old and was not eligible for an ABLE account before. Will they qualify starting in 2026?
Potentially yes, if their disability onset occurred before age 46. Starting January 1, 2026, the ABLE Age Adjustment Act expands eligibility to millions of additional individuals whose disabilities began before they turned 46. If they already receive SSI or SSDI, eligibility is automatic assuming onset criteria are met. If not, they will need a physician certification confirming that their disability meets Social Security’s definition. We recommend beginning that documentation process now.
Q4: How do I balance funding my child’s trust with my own retirement savings?
This is a question every special needs family eventually faces, and there is no one-size-fits-all answer. In general, we advise continuing retirement contributions at least enough to capture any employer match, then directing additional funds to the trust or ABLE account. Life insurance on both parents is often the most cost-effective way to ensure the trust is funded at death without requiring you to deplete your own retirement assets today. A comprehensive financial model, one that projects your retirement needs alongside your child’s lifetime care costs, is the most reliable way to find the right balance.
Q5: What happens to ABLE account funds when my loved one passes away?
Upon the account owner’s death, remaining ABLE funds are first used to pay any outstanding qualified disability expenses, including funeral and burial costs. After that, many states have a Medicaid payback provision, meaning the state’s Medicaid program may claim reimbursement for services provided after the account was opened. Several states have passed laws limiting or eliminating this payback, so the specific rules depend on which state’s plan you use. Any remaining funds pass to the estate or a named successor beneficiary. This is another reason to coordinate your ABLE account selection with your broader estate and special needs plan.
Conclusion: Planning Is the Most Powerful Thing You Can Do
Caring for someone with special needs requires more than love. It requires structure, foresight, and a plan that holds together even when you are not there. A Special Needs Trust, an ABLE account, a Letter of Intent, the right guardianship arrangement, and a coordinated approach to your own retirement and insurance needs are not separate tasks. They are one interconnected strategy.
The good news: with the right guidance, this complexity is manageable. At MJT & Associates, we work with families at every stage of this journey, from the early years of diagnosis through the transition to adult services and beyond. We coordinate with your estate attorney, your benefits counselor, and your tax advisor to make sure every piece of your plan works together.
Your loved one deserves a future full of dignity, opportunity, and security. Let’s build that plan together.
