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Using a Standby Supplemental Needs Trust to Protect Your Loved Ones

We all plan for “just-in-case” scenarios. When packing for our week-long vacation, we throw in a rain jacket even though the weather forecast is sunny—just in case. When planning for the future, it is also important to consider what will happen just in case one of your loved ones becomes disabled.
We tend to think that disability is something that affects other people. But approximately 61 million adults in the United States live with a disability—that is one in four adults.[1] And more than one in four twenty-year-olds will become disabled before reaching retirement age.[2] Disability is unpredictable, and accidents or serious physical or mental conditions, such as cancer or mental illness, can happen to anyone at any age.
As helpful as it would be when planning, no one has a crystal ball to see into the future. We do not know when we will pass away, and we do not know what position a beneficiary will be in at the time of our death. So even if you do not currently have a loved one who is disabled, it is critical not to overlook the question of what will happen if your loved one becomes disabled at a future time.
If a loved one becomes disabled, they may need to rely on financial assistance from government programs such as Medicaid or Social Security Disability Insurance. Unfortunately, a monetary gift or inheritance from you may disqualify this loved one from receiving these public benefits. In this situation, your well-meaning gift could become more of a curse than a blessing.
Standby Supplemental Needs Trust
To avoid the possibility that a disabled loved one will lose government benefits because they have too much money, you may want to consider setting up a standby supplemental needs trust as part of your estate plan. The terms of a supplemental needs trust provide that the trust’s money and property are only available to supplement the government benefits a beneficiary may be receiving. Therefore, the trust’s money and property are not included as available resources when determining a beneficiary’s eligibility for government needs-based benefits. A “standby” supplemental needs trust does just what its name implies: the supplemental needs trust is not created automatically but is on standby and comes into existence only if a beneficiary is disabled at the time of your death or, depending on the applicable state’s eligibility rules, becomes disabled at a later date but before the trust has been fully distributed. If the disabled beneficiary is receiving public assistance at the time of your death, the inheritance the beneficiary receives from you in a supplemental needs trust will not disqualify them from the public assistance benefits they are receiving but instead can be used to supplement the benefits they are receiving from the government and enhance the beneficiary’s life.
Since no one knows what the future holds, nearly every estate plan could benefit from including standby supplemental needs trust provisions. If the standby supplemental needs trust is not needed at the time of your death, then the trust will not come into existence. But it does not hurt to include it—just in case.

[1] Disability Affects All of Us,, (Sep. 16, 2020).

[2] The Faces and Facts of Disability,, (last visited Feb. 2, 2022).