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Legal and Financial Planning for Your Children

If you or a grandparent plan to help your child financially, before or after death, you’ll have to make special arrangements. Because of the laws surrounding public disability benefits — benefits your adult child could need if his symptoms require hospitalization or prevent him from working — inheriting money could end up being a terrible burden rather than a safety net.


When your child’s 18th birthday occurs, you will no longer have the same legal control over him unless you’ve made prior arrangements. If your 18-year-old is still unable to safely care for himself, or if he becomes so at any time in the future, you will need to go to court to obtain legal guardianship.

In most US states there are three types of guardianship: full, limited, and temporary. Full guardianship is just what it sounds like: full authority over all decisions in the person’s life. Limited guardians have authority only in certain areas where the court recognizes the need for oversight. In your child’s case, this might be medical care, housing, or entering into financial contracts. Temporary guardianship is limited to a short period of time (usually 30 days) and for a specific purpose. You might be appointed as your adult child’s temporary guardian when he is hospitalized. Conversely, the court might appoint someone else as his temporary guardian.

There are other forms of legal status that you or another responsible person might want to hold for an adult child with a mental illness. These include power of attorney and medical power of attorney status.

Your Will

Even if you and your child are both young, you should have a will to protect your estate. It doesn’t matter if you don’t have much to leave. Even furniture, an old car, or a modest home can have tremendous value to an adult whose earning power could be limited by illness.

You’ll want to consult a lawyer who understands disability inheritance issues. She can help you write a will that protects your child’s interests and helps him retain eligibility for needs-based services.

Special Needs Trusts

Special needs trusts can be part of your will. These trusts can make funds or real property (such as a home) available to an adult with a disability. Formally established in the US by the Omnibus Budget Reconciliation Act, special needs trusts are set up to keep the recipient eligible for government assistance, publicly funded health insurance, and subsidized housing if needed.

Money held in trust can be used to pay for items other than food, clothing, and shelter, such as education, phone bills, and recreation, without reducing benefits. If these funds are used for food, clothing, or shelter, a limited amount can be deducted from the SSI check.

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Another financial instrument that benefits adults with special needs is the pooled trust, in which several parents and perhaps other entities (such as a social services organization or charity) combine their resources. A pooled trust might be used to fund a group home, for example.

You can set up your estate to fund a special needs trust at your death, or you can set up an irrevocable special needs trust during your lifetime to tend to the needs of a disabled adult or child. It is also possible to purchase certain types of annuities, such as life insurance policies, and earmark the proceeds for a trust to be set up in the future.

You’ll need to consult a financial planner and/or a lawyer with experience in working on disability issues to set up a trust. Special needs trusts require a trustee other than the recipient to be in charge. This might be a well sibling, another relative, a trusted friend, or a professional trust manager. For adults with mental illness, it’s crucial that the trust administrator be someone who understands how the money should be used. You don’t want it to be frittered away on whims, or worse yet, on substance abuse. Neither would you want the trust manager to use funds to keep your adult child in a hospital when she could safely be living in the community. The trust manager may need to be instructed to pay bills directly from the trust, and never to give funds directly to your adult child. Either the trust manager or a co-trustee should have full understanding of your adult child’s needs, and how they might be met in the most inclusive, community-based way.

Letter of Intent

This isn’t a legal document, but it’s an important one when it comes to how your child’s affairs will be handled after you’re gone. The letter of intent can serve as your voice to guide future caretakers, should you ever be out of the picture. It should be written as though intended for someone who knows nothing about your child or your family, and stored with your will and other legal documents.

The letter of intent should be comprised of at least four sections:

1. General information. This section should include such things as your child’s full name, date of birth, Social Security number, address, blood type, religion, and citizenship status. It should also include a list of all known family members, and any non-relatives (such as a family friend, clergy member, or caseworker) whose advice and help a caretaker could call on.

2. Medical history and care. In this section, list all of your child’s diagnoses, with a brief explanation of the symptoms of each that a caretaker might need to be aware of. List any hospitalizations and surgeries your child has had. Include complete contact information for all doctors involved in your child’s care, as well as dentists and therapists, and provide insurance information.

3. Goals. This is a section to work out with your child. It should state what his preferences are for living situation, daily activities, diet, social activities and hobbies, religious observance, etc. Should your child be unable to communicate his needs for any reason, this section will help guide his care.

4. Legal information. List all assets, including bank accounts, annuities, property, life insurance policies, stocks, trusts, and safe deposit boxes, in this section. It should also include contact information for any financial advisor who handles your finances or assets held in trust for your child.

Legal and Financial Planning for Your Children

Sherrie Mcgregor, Ph.D.

APA Reference
Mcgregor, S. (2020). Legal and Financial Planning for Your Children. Psych Central. Retrieved on September 18, 2020, from
Scientifically Reviewed
Last updated: 30 Jul 2020 (Originally: 17 May 2016)
Last reviewed: By a member of our scientific advisory board on 30 Jul 2020
Published on Psych All rights reserved.