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What About a Special Needs Trust for Your Nephew?

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Special needs trust for your nephew

You have a grandchild, or niece or nephew, with a developmental disability. You’d like to leave him (or her) some money in your will. Do you need to create a special needs trust for your nephew?

The basic rule

First, let’s be clear. Please do not leave your nephew any money outright. Say, for example, that you really like him, and want to let him know about your warm feelings for him. Your will says “I leave $20,000 to my nephew Brent.” That’s very nice.

Except that you just knocked him off of Supplemental Security Income (SSI) if he receives it. You probably also caused problems for his Medicaid eligibility. And if his disability affects his ability to manage money, you might also have triggered a court proceeding.

This is the same rule that applies to your sister, his mother. If she leaves him money outright, she will also cause problems for him. But she can also create those problems by doing nothing — because he is probably one of her heirs. If she fails to write a will (or create a trust) at all, Brent’s benefits are at risk.

That’s your second important rule: you need to keep urging your sister to do her own estate planning. Brent needs her to do that.

So do you have to create a special needs trust?

Maybe not. There are a number of ways you can get money and benefits to your nephew, and only some of them involve you creating a special needs trust. Here are a few:

  1. You can leave money to an existing trust. Did your sister create a special needs trust for Brent? Your will could say “I leave $20,000 to the Brent Special Needs Trust Dated May 25, 2020.” You need to get the actual name of the trust from your sister, of course — and it might be good to name the trustee (at least the current trustee) of that trust, too. But the idea works.
  2. If your sister’s will creates a special needs trust for your nephew, can you leave your gift to that “testamentary” trust? Yes — but only if your sister dies before you. That trust won’t exist until her death, so there’s no trust to receive your inheritance if you die first.
  3. You might be able to use a pooled special needs trust, or even an ABLE Act account — though that last one is only available if you intend to leave Brent less than $17,000 (this year, anyway).

Can I create a trust for my nephew?

Of course. Your estate plan will probably be a little more expensive, and the documents a little more complicated. But nothing stops you from creating a special needs trust for Brent. You have two choices:

  1. You can create a “testamentary” special needs trust. That just means that your will includes provisions for who will manage the money and what terms they will need to follow. This is not something you should try to do for yourself, by the way — this is a time for you to get good legal advice.
  2. You can create a stand-alone special needs trust — just like the one your sister should have already created. In fact, you can set up that trust and help simplify your sister’s choices. She can then leave her estate (or part of it) to Brent’s special needs trust — the one you created for her. You saved her some money, and some trouble! You’re a good person.

What if it’s not my nephew?

Our explanation applies to your nephew. Or your niece. Or your granddaughter/grandson. Even the neighbor’s kid that you just really like.

In other words, there’s no particular requirement or limitation about setting up a special needs trust for someone you want to benefit. In fact, there’s not even a requirement that they be disabled. You might think they just need assistance managing money. Or they might be immature, or inclined to spend the money in ways you don’t want to encourage.

Suppose, for instance, that your nephew is the classic “failure to launch” kid, living with your sister and her spouse at age 30 and not moving toward independence. But he’s never been found to be disabled, and isn’t getting government benefits. Can you still leave money in trust for him?

Absolutely. The hardest part might be finding a trustee who you know will apply the same kind of logic you would to making distributions. Want to encourage him to get some job training? Your trust can spell that out. Worried about his abuse of alcohol or drugs? You can limit distributions from the trust you establish.

Maybe you think he could qualify as disabled if he would get evaluated and apply for benefits. Your trust can encourage your nephew to follow through. In other words, there is terrific flexibility — you should talk with your estate planning attorney about your options and goals.

What could possibly go wrong?

Lots. Here are the things we see most often:

  1. You create a special needs trust for your beneficiary, and then you name him as payable-on-death (POD) beneficiary on your bank accounts. You just left the money to him outright — it doesn’t go to the trust unless you make the trust the beneficiary instead. Same thing for your life insurance, your retirement account, etc. We see it all the time: careful planning in the documents, but no planning on the beneficiary designations.
  2. You create the special needs trust, then think you’re done. You really need to revisit the trust every few years (how many? we suggest about five) to make sure it’s still the right way to benefit your nephew.
  3. You create a special needs trust. So does your sister, and her ex-husband. Also your sister’s ex-husband’s parents. So now there are four different trusts, with different trustees and different language. Who will pay for the car repair your nephew needs, or for his tuition? How will the various players coordinate?
  4. You use too-restrictive language, or outdated provisions, or vague language in your trust. To be fair, these problems are more common when people write their own trust language; your estate planning attorney can probably recommend some better alternatives.
  5. You fail to name a back-up trustee. It’s often hard to find enough candidates for the role of trustee — which, to be clear, is not so much an honor as it is a burden. But it’s a rewarding burden, so go ahead and ask your brother’s daughter if she would be willing to act as backup trustee for her cousin. She might be a great candidate!

To summarize:

Yes, you can create a special needs trust for your nephew (or niece, or grandchild, or neighbor’s child). It’s a kind and thoughtful thing to do. You might even be able to benefit your sister/brother/child by creating the current trust document they need for their own estate plan. And a well-drafted trust will improve your nephew’s quality of life.

You’re a mensch for doing this. We applaud you.

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Robert B. Fleming


Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman


Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson


Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

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Matthew M. Mansour


Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.