John and Elizabeth had three children, and their estate planning attorney prepared a living trust that passed their estate in equal shares to these children. At John and Elizabeth's death, the estate was estimated to be $2,400,000, and after taxes and expenses, the children will be left with $1,800,000 ($600,000 each) that will be kept in trust for them.

All three of John and Elizabeth's children had children of their own.

A short time later, John and Elizabeth's son Jerry was involved in a terrible accident. Jerry was injured so badly that he was unable to care for himself. 

The person named as guardian immediately sought help for Jerry's medical expenses from Medicaid or other means-based government programs.  They were shocked to learn that the entire $600,000 set aside for Jerry must be spent on medical expenses before Medicaid would assist him.  As an alternative, the guardian learns that the assets could be placed in a special kind of trust to be used for Jerry's benefit. But at Jerry's death, the trust must reimburse Medicaid for what was spent for care during his life.

This result could have been avoided by creating a special needs trust.  A special needs trust is specially designed to hold the inheritance of a beneficiary, and to be used for needs above and beyond those covered by government programs.  These trusts contain instructions that allow the Trustee to meet the needs of the beneficiary, but prohibit the Trustee from providing for those needs if already covered by Medicaid or other programs. It also prohibits the Trustee from using the assets to reimburse any government program after the beneficiary’s death.

As a result, the inheritance can be used at the discretion of the Trustee, and anything left over at the time of Jerry's death could be passed on to his children.