How should I name a beneficiary with special needs to avoid affecting government benefits?

Naming a person with special needs directly as a life insurance beneficiary can inadvertently disqualify them from means-tested government benefits like Medicaid and Supplemental Security Income (SSI), which have strict asset limits. Receiving a large lump-sum death benefit could disqualify the beneficiary from essential benefits they depend on.

The solution: name a special needs trust (SNT) as the beneficiary instead of the individual. A properly structured SNT can receive and hold assets for the benefit of the person with special needs without affecting their eligibility for government benefits. The trust pays for supplemental needs — expenses not covered by government programs — without counting as the individual's asset.

Types of SNTs: first-party SNTs are funded with the beneficiary's own assets and must reimburse Medicaid at the beneficiary's death. Third-party SNTs are funded by someone else (like a life insurance death benefit) and have no such Medicaid payback requirement — making them preferable for life insurance beneficiary purposes.

Nevada residents planning for a child or other dependent with special needs should establish a third-party special needs trust with a Nevada estate attorney and name the trust as the life insurance beneficiary. Agents in our network can coordinate with estate counsel to ensure the life insurance and trust structure align.

This is a complex area of law — do not attempt to structure a special needs trust without qualified legal guidance.