When a loved one has special needs, planning for their long-term care is one of the most meaningful steps a family can take. Here in Texas, Special Needs Trusts (SNTs) are primary tools for ensuring your loved one’s financial security without disrupting their eligibility for important government benefits like Supplemental Security Income (SSI) and Medicaid.
Unlike a direct inheritance (read: handing someone a pile of money that they can’t realistically manage), which can unintentionally disqualify someone from these benefits, an SNT preserves access to support programs while still providing resources to improve quality of life.
What are your options, and how does it all work?
So What Is a Special Needs Trust?
A Special Needs Trust is a legally structured way to hold assets for the benefit of a person with certain disabilities. The trust is managed by a trustee, who oversees the funds and makes allowable distributions on the beneficiary’s behalf.
Because assets in a properly drafted and structured SNT are not the beneficiary’s personal assets (i.e. they cannot control the assets or force distributions), they do not count against the strict income and resource limits required for SSI and Medicaid.
Importantly, SNT funds are designed to supplement (not replace) government benefits. They can be used for therapies, education, transportation, technology, recreational activities, and many other expenses that enhance the beneficiary’s daily life.
Types of Special Needs Trusts Available in Texas
Texas families generally rely on one of the following two types of Special Needs Trusts:
- First-Party Special Needs Trusts
A first-party SNT is funded with the beneficiary’s own assets. Even if someone has never been able to work or accumulate their own wealth, consider other assets they may acquire: an inheritance accidentally left to them, mineral leases (or other revenue sources) that have entered their possession by operation of law, or settlement funds from a lawsuit.
Because these are the beneficiary’s own funds, federal and state law require the trust to include a Medicaid payback provision. After the beneficiary passes away, any remaining trust assets may be used to reimburse the State of Texas for Medicaid expenses paid during the person’s lifetime.
Additionally, a first-party SNT must generally be established before the beneficiary turns 65 to qualify for special treatment under SSI and Medicaid rules.
- Third-Party Special Needs Trusts
A third-party SNT is funded with assets belonging to someone else. Consider a parent or grandparent’s resources as a common option. Because the beneficiary never technically owned these funds, there is no Medicaid payback requirement. This distinction matters because any remaining assets can pass to other family members after the beneficiary’s lifetime.
These trusts are commonly created as part of a family’s broader estate plan and can be funded during life or at death.
How Special Needs Trusts Work With Texas Benefits
Texas follows federal guidelines for SSI and Medicaid eligibility, which means that individuals must keep their countable assets below strict thresholds. A properly drafted Special Needs Trust shields assets from counting against these limits, allowing the beneficiary to keep their benefits while still receiving supplemental support.
This matters, because distributions must be made carefully. There is a technical distinction between spending for “necessary support” and “supplemental needs” that has some significant real-world implications. For example, trust funds used for housing or food (necessities) may impact SSI benefits, while funds used to reasonably supplement a person’s quality of life within certain parameters (such as therapy, education, personal care items, or recreation) are counted a bit differently.
In practice, these distinctions can become nuanced. It is advisable to seek professional guidance when setting up these trusts due to the significant impacts upon a loved one’s quality of life that can result from these distinctions, funding sources, and payment terms.
Choosing a Trustee and Getting Support
Selecting the right trustee is crucial. Trustees must understand both Texas trust law and the specific rules governing SSI and Medicaid. Ideally, they will also have compassion toward the person whose finances they are managing. With this in mind, many families choose a trusted relative, a professional trustee, or a corporate fiduciary to ensure careful long-term management.
Because small mistakes can jeopardize benefits, families are– once again– wise to consult with an attorney experienced in Special Needs Trusts to draft, fund, and administer the trust correctly.
Ongoing Support for Them – Peace of Mind for You
A Special Needs Trust offers peace of mind for Texas families who want to protect a loved one’s care, dignity, and financial future. With thoughtful planning, you can ensure ongoing support while preserving access to the essential benefits your loved one relies on.
If you’re ready to explore which trust structure is right for your family, now is an excellent time to begin the conversation. Reach out, and we’ll set up a consultation.