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Special needs planning: Which is better, a provision or a separate trust?

by Kelly Gicale | Contributor
September 9, 2021

If your family includes a child or other loved one who has disabilities, then you probably have considered setting up or arranging a financial plan to provide for their care. With these family members, it's even more important to have the right plan in place to prevent them from losing the benefits to which they are entitled.

As a parent of a child with disabilities, you also are likely concerned with how your son or daughter will be provided for after your lifetime. A common solution that many parents choose is a supplemental benefits trust. This option is very popular because it allows parents who are the caregivers for their child to provide financial support for them after they are gone. It also serves an important function for preserving their child's government benefits, like Medicaid.

If you decide that a supplemental benefits trust is right for you and your family, then the next decision is how to set up the trust. Generally, you have two different options, as a supplemental benefits trust can be created through a provision in your revocable living trust or will, or you can create a stand-alone, separate trust solely for this purpose.

If you choose to use a provision in your will or living trust, then the supplemental benefits trust will not be created or funded until both you and your spouse have passed away, assuming your child survives you both. On the other hand, if you choose a stand-alone trust, then it will be created and funded during your lifetime. A separate trust also must be drafted so that it is for the “sole benefit” of the beneficiary. This means that the trust must explicitly require the trustee to use all the resources held in trust for your child's benefit over the course of their expected lifetime.

Both a provision and a separate trust have advantages and disadvantages that need to be balanced to determine what's best for your family. In this article, you will find useful information about the benefits and drawbacks of each so that you might have a better sense of which option might work best for you.

Which option is more common?

As an initial consideration, it's useful to know that if you will only be using your own assets to fund the trust, then it's more common to add a distribution provision to your revocable trust or will. Conversely, if you anticipate funding to come from your own assets and from other family members, especially those who are planning to name the trust as a beneficiary of financial accounts or other transfer-on-death assets, then a then a separate trust is likely the better choice.

In general, however, it's important to work with a qualified estate planning attorney who can guide you on deciding whether a separate trust or a provision in your will or trust directing the creation of the supplemental needs trust would better address your goals for providing for your child.

What are the advantages to using a provision?

Creating a supplemental needs trust through a provision in your living trust or will has a number of advantages.

First of all, it's simpler. Rather than take on the cost and effort to create a new, separate trust, you can simply include an additional line in the revocable living trust you're creating for your entire estate.

Similarly, because the provision creates the trust after your passing, you do not need to worry about meeting the requirements of a current supplemental needs trust. This means you can rest assured knowing that the trust will meet the government's eligibility requirements at the time when your child needs it in the future. It also means you do not need to guess at the proper funding level, which would be the case with a stand-alone trust.

Also, with this option there is no risk that your son or daughter will lose their government benefits. That's because the trust doesn't exist when you add the provision to your will or living trust; it is only created once you and your spouse have passed away. With a separate trust, on the other hand, there is a greater risk that your child could lose their current benefits as explained below.

Another benefit to using a provision in your will or living trust is that you do not have to give up assets you might need down the road to fund the supplemental needs trust. It can be difficult to know how much money you will need in retirement, especially if you or your spouse experiences a serious accident or illness requiring costly care. If you were to create a separate trust now, you would be required to fund it with assets you may need for your own expenses. With a simple provision, however, you have the freedom to use your assets as you need to during your lifetime (for your needs or for your child's), and then leave the remainder to your child's trust for their care after you are gone.

Finally, a provision may be preferred to a separate trust when it's unlikely that a child with special needs will outlive their parents. That way, the parents can avoid the unnecessary cost of creating a separate trust that the child will not need.

What are the disadvantages to using a provision?

Although simpler, using a provision also has some disadvantages to consider and be aware of when deciding which option might work best for you.

When you add a provision in your will or trust to create a supplemental needs trust as part of your estate administration, you must inherently rely on someone else to properly establish and fund the trust for your child's benefit. Because the trust is not created until after you are gone, there is no way to know for sure that the trust is working well for your child and that the trustee is taking the right measures to provide for them long into the future. You cannot speak to the trustee or observe the trustee's administration of the trust to have peace of mind that your assets are being managed well.

Additionally, if your main estate planning document is a will and you include the provision in it, then the trust's creation and funding will be subject to the costs and delays of the probate process. Probate is a notoriously frustrating and slow procedure, with intensive court oversight and limited privacy. If your child's trust - and therefore their resources for care — is dependent on the completion of this process, then there could be a longer period of time when they are not being provided for. This means that your child's care may be disrupted during the time needed to file documents and administer the probate proceeding.

What are the advantages of a separate trust?

A stand-alone trust has other benefits that may make this option a better choice for you and your family.

First, when you create a separate trust during your lifetime, you can be sure that it is established and fully funded for your child. In this way, you are removing the risk of your trustee failing to fund or manage the trust in the way you envision. You can also speak with the trustee and supervise the administration of the trust to ensure that your assets are being managed to provide for your child in the long term. It also means that you can name a new trustee if you are not happy with your original trustee's performance, which would obviously not be the case if you were to use a provision in your will or trust to establish the separate trust.

a couple sitting at the park with a child with disabilities

Additionally, another benefit of a current separate trust is that you or your child's grandparents can transfer assets into it in order to qualify for Medicaid. This means that a grandparent can transfer their assets into your trust for the sole benefit of their special needs grandchild and become immediately financially eligible for Medicaid benefits.

Speaking of other family members, with a stand-alone trust, your relatives or friends can name the trust as a beneficiary in their estate plans and beneficiary designations. This means that other people in your child's life who love them and wish to provide for them can do so with a trust you've already created. And it would prevent these inheritances from potentially affecting your child's eligibility for government benefits.

Also, unlike a provision in your will or living trust, lifetime gifts can be made to a separate trust that you create now. As a result, you and your relatives or friends can add to the trust whenever it's financially preferrable or advantageous. This also means that funds from any community fundraisers for the benefit of your child can also be placed in the trust.

In addition to current funding, you can also name the trust as the beneficiary of life insurance, retirement accounts and other assets that pass by beneficiary designation. Because with a provision the supplemental needs trust is created at your passing, it would be impossible to name the trust as a beneficiary of these or other accounts. As beneficiary designations are non-probate assets, the funds from those are typically available much sooner than those tied up in the probate process. Consequently, if you are principally relying on these assets as the main source of funding for your child's needs, it could be even more important to have this ability through the creation of a stand-alone trust.

Finally, other benefits of establishing a separate supplemental special needs trust include the fact that there is no beneficiary age limit, so you can create it for your child at any time, and there is no limit to the value of assets you can place in the trust. Additionally, you can also work with an experienced attorney to draft it as a grantor trust with income taxed at individual rates. This would be advantageous because it can help you to avoid higher irrevocable trust tax rates.

What are the disadvantages of a separate trust?

While there are several advantages to creating a stand-alone trust, there are some disadvantages to be aware of as well when making your decision.

First, your state's laws will almost certainly require a supplemental needs trust to be funded, at least partially, upon creation. This means that you may have to part with assets that you could otherwise rely upon for your own future needs, or for those of your other children. With a provision, on the other hand, you maintain complete control over your assets as the trust will be funded after you and your spouse have passed.

Another disadvantage that is important to know about is that a current trust will need to be disclosed if your child applies for benefits. While the value of the assets in the trust may not disqualify them from receiving those benefits, there is a greater risk that a separate trust could affect the benefits available to your son or daughter.

Also, if the trust is poorly administered, there's also a risk of your child losing their benefits. While with a stand-alone trust you can take a greater role in overseeing its management, there's an inherently greater risk of benefits loss with this option than with a provision in your will or trust. That's because there isn't technically trust that can be mismanaged when you use a provision in your will or living trust. As the trust is created and funded later, your child is not at risk of losing his benefits due to trust mismanagement now.

Another important disadvantage to consider for loved ones aside from your child with special needs is the burden a separate trust could place on your family. A stand-alone trust not only must be funded, but it must also be managed and administered as well. This means taking resources available to your entire family and committing them to be used solely for your special needs child. It also could lead to a heavy administrative burden for whomever you name as trustee. And, as with any funded trust, it could involve other costs and fees that would decrease your overall wealth. Because creating a supplemental needs trust during your lifetime can be a much more burdensome option, it likely would only be your best choice if the advantages that come with this arrangement would make the added hassle worth it.

Finally, this option also may not be the best for your family if you think it's unlikely your child with disabilities will outlive you. Especially in light of the added steps and requirements needed for a stand-alone supplemental needs trust, it does not make much sense to spend the time, money and effort to create one if your child does not need to be provided for after your lifetime. Similarly, if your child is not in a position where he or she relies upon needs-based assistance, you also likely would not want to take on the extra work and expense of this kind of arrangement. In that circumstance, you can use more straightforward support methods because you do not need to be concerned about your plan affecting his or her eligibility for such assistance.

What about a trust funded by the person with special needs?

If the trust will be funded with your special needs child's own assets, then it must be a stand-alone trust established now. If this is an option for your child, it's important to know that you cannot combine your child's assets and your assets into a single trust.

For instance, your child could benefit from a special needs trust funded with their own assets (a first-party trust) and they could receive additional support from a separate supplemental benefits trust funded with assets of others (a third-party trust), including an inheritance. However, your child cannot place any of their own assets in a third-party trust.

It's highly recommended that you work with an experienced professional to create this arrangement, as additional requirements and restrictions apply to such first party special needs trusts.


While any parent of a child with disabilities would agree that it's important to provide for their son or daughter and ensure they have the resources they need for their care both now and into the future, many people in this situation do not know the best way to go about doing so.

A supplemental needs trust is a common solution for many people facing this dilemma. You can create this kind of trust through a provision in your will or revocable living trust, which will establish the trust after your lifetime, or you can create a stand-alone supplemental needs trust during your lifetime for the benefit of your child.

As mentioned, there are several advantages and drawbacks to either option, but the most important consideration is what arrangement will work best for you and your family. This article serves as a starting point, but it will be critical to engage with a knowledgeable attorney who specializes in these kinds of trusts. By working with an experienced professional, you can ensure that you're making the right choice for you and for your child, avoiding any benefits loss or disruption in care, and providing what your son or daughter may need even after you and your spouse are gone.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at

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