Special Needs Planning for Blended Families

Takeaways

• Blended families with special needs children face complex legal and financial challenges, requiring proactive estate planning.
• Careful use of special needs trusts, life insurance, and guardianship designations is crucial to protect the child and maintain family harmony.

The modern family is no longer defined by the nuclear model. Today, blended families — where one or both partners bring children from previous relationships — are increasingly common.

So-called “nontraditional” families, including blended families, now outnumber traditional ones in the United States. Yet while cultural acceptance of these evolving structures is growing, the realities remain challenging, especially when a child with special needs is part of the equation.

For blended families that include a child with special needs, financial and legal planning extends well beyond the usual parental concerns. Issues of inheritance, caregiving, and guardianship become more layered. Questions of fairness and responsibility are harder to resolve. But as with all family matters, proactive planning can help.

The Modern Blended Family

Blended families (households with a stepparent, stepsibling, or half-sibling) are no longer a rarity. According to research, roughly 16 percent of U.S. children live in blended families, a 12 percent increase since 1960. An estimated 1,300 new stepfamilies form every day.

During the 60s, The Brady Bunch television show introduced many Americans to the blended family at a time when most shows portrayed two-parent, first-marriage families. Later shows, such as Step by Step, Modern Family, This Is Us, and Shameless, depicted the messier realities: clashing parenting styles, sibling rivalry, and custody conflicts.

Alongside this demographic shift is an increase in the number of children with disabilities. In 2014, an estimated 6 million U.S. children were considered disabled, representing a 16 percent increase over the prior decade. From 2019 to 2021, the prevalence of childhood developmental disabilities rose from 7.4 percent to 8.6 percent. A recent report shows that one in 31 children has autism — a staggering rise from one in 150 just two decades ago.

Meanwhile, the number of children receiving special education services has grown by more than 10 percent since 2006. Today, nearly one in five kids in the U.S. has a special health care need, which may include chronic illness, neurodivergence, or a behavioral health diagnosis.

This convergence of trends — more complex households and more children with special needs — can necessitate more “nontraditional” estate plans.

Unique Planning Challenges

Blending households means navigating new relationships, competing loyalties, and, sometimes, the lingering emotional and financial consequences of previous unions. Add a child with disabilities into the mix, and the stakes — and stresses — can be even higher.

Research suggests that around 60 to 75 percent of marriages involving children from a previous marriage fail. Estate planning within any blended family can pose potential conflicts. Yet the substantial financial and caregiving demands of a special needs individual can create or exacerbate family tensions.

• Caring for an individual with disabilities can cost several million dollars. Allocating substantial assets to a special needs child can cause resentment among other children, particularly those from a different biological parent.
• Blended families may grapple with what’s “equal” versus “equitable.” An equal split might not account for the higher lifelong costs of caring for a disabled child. However, prioritizing them might cause resentment among other siblings if they feel a lack of transparency or inclusion in financial decisions.
• In blended families, selecting a guardian can be tricky. Biological parents may prefer their own relatives. However, a stepparent who has raised the child might be the most familiar caregiver. Yet stepparents typically lack legal standing unless they formally adopt the child or are explicitly named in legal documents, potentially posing legal problems in guardianship proceedings or medical decision-making.
• Special needs trusts (SNTs) allow beneficiaries to receive an inheritance without disqualifying them from means-tested government programs like Medicaid. Blended families face challenges in funding these trusts fairly (e.g., should only biological parents contribute or stepparents, too?).
• Inheritance laws usually do not recognize stepchildren unless specifically included in a will or trust. Failing to create an estate plan could render a disabled child ineligible for public benefits. And a surviving stepparent may not have any obligation or authority to carry out a biological parent’s unrecorded wishes.
• Blended families may have to navigate preexisting divorce agreements that include child support, alimony, or financial provisions for other children. These obligations can strain resources and complicate the funding of SNTs.
• After a biological parent’s death, questions may arise about whether child support should continue as direct payments to the trust or be recalculated, which could require court interpretation.
• Parents want their assets to benefit their child for the long term, including after the death of a new spouse. This can lead to the use of trusts that limit the surviving spouse’s access to funds, potentially leading to litigation.
• Further complications can arise when a surviving spouse remarries. Assets intended for the special needs child could be diverted to a new partner or their family.

Such challenges show how delicate and high-stakes special needs planning becomes within blended families. Without clear, coordinated legal strategies, even well-meaning intentions can unravel into costly disputes or unintended consequences while leaving a disabled child unprotected.

Careful Estate Planning Is Key

Special needs blended families can surmount these challenges through clear planning that balances compassion and legal precision.

• Establish an SNT tailored to the child’s specific needs and coordinated with the family’s overall estate plan. Funding sources should be secure and clearly identified.
• Use life insurance strategically to equalize inheritances or fund an SNT without tapping into core estate assets.
• Ensure beneficiary designations for insurance and qualified plans (i.e., retirement plans) do not name a special needs child to protect their government benefits.
• Draft letters of intent to guide future caregivers and trustees regarding the child’s preferences, routines, and medical needs.
• Consider co-trustees or trust protectors to help facilitate long-term oversight when trust administration spans multiple family branches and generations.
• Educate extended family about gifting through the appropriate legal structures to avoid unintentionally jeopardizing a disabled child’s benefits.
• Execute clear wills, trusts, and guardianship designations. Update these regularly and after life changes like remarriage or the birth of additional children.
• Plan for the long term: Estimate the special needs child’s lifetime costs (e.g., therapies, housing, medical care) and secure funding through SNTs, life insurance, or ABLE accounts while addressing other children’s needs to maintain family harmony.
• Review benefits eligibility regularly. Rules for programs like Medicaid can change, so monitor how inheritance or guardianship plans affect government benefits.
• Host family meetings to set expectations, clarify roles, and build consensus around care and inheritance decisions.
• Engage a special needs attorney, financial planner, and possibly a mediator. They can tailor plans to your family’s structure, ensuring compliance with state laws and benefit programs.
• Coordinate with family law attorneys to address divorce decrees, child support obligations, and spousal rights when creating your estate plan.

The right legal tools — and the right conversations — can make all the difference. By addressing issues early, often, and inclusively, special needs blended families can ensure stability, financial security, and shared purpose.