MW My daughter will be on Medicaid for life. Can my wife and I invest in the stock market?

By Harry Margolis

Consider a special-needs trust, in addition to other safeguards

Dear Harry,

Our daughter was born with a rare disease and will be on Medicaid for her whole life. Can my wife and I invest in the stock market or would those assets have to be sold?

-Worried Dad

Dear Dad,

You don't say how old your daughter is now. While she is under age 18, her eligibility for Medicaid will depend on your and your wife's income and assets - so if you accumulate savings, that could affect your daughter's continuing eligibility.

However, once your daughter turns 18, her eligibility for Medicaid will be assessed based on her income and assets alone - without regard to those of you and your wife, even if she continues to live with you. This is also true of Supplemental Security Income $(SSI)$, though the monthly stipend is reduced by a third if your daughter is living in your household. So when your daughter reaches age 18, if she hasn't already, you and your wife will be able to invest in the stock market or elsewhere as you choose.

Read: You want income in retirement, but soaring bond yields can be risky.

However, anything you leave your daughter as part of your estate could then throw her off public benefits if she were to receive the funds or property directly. The usual practice of parents who have children with disabilities is to leave them their inheritance in a special-needs trust. These trusts are designed to be available for the child's support while permitting them to maintain eligibility for vital public benefits such as Medicaid. (SSI may become less of a concern at that point because once you or your wife retire, your daughter should become eligible for Social Security Disability Income (SSDI), which usually provides a bigger stipend than SSI and is not based on maintaining financial eligibility.)

A further advantage of special-needs trusts is that you and your wife can name a family member or professional to serve as trustee (or both acting as co-trustees) to manage the funds for your daughter's benefit. This can make sure that they are well managed and that your daughter is protected both from making her own poor spending and investment decisions and from financial scams perpetrated by others.

Read: 'The situation is extreme': I'm 65 and leaving my estate to only one grandchild. Can the others contest my will?

While you may not have sufficient savings now to justify the creation of a special-needs trust, many parents create them anyway for a number of reasons.

First, so that they're in place for the future. Second, in case others, such as grandparents, might be interested in setting aside funds for the disabled child. And third, parents often buy life insurance to fund special-needs trusts to make sure there are resources available when they are no longer there to provide care. Depending on your age and health, term policies can be relatively inexpensive. Whole-life policies are more expensive, but guarantee that the policies will be available however long you live, as long as you can keep paying the premiums.

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-Harry Margolis

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June 06, 2025 14:22 ET (18:22 GMT)

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