Families who have loved ones with special needs may worry about their eligibility for government benefits that can help pay for care, especially if their loved one receives significant sums of money through a settlement, court judgment, or inheritance. A special needs trust is one of the major types of irrevocable trusts that can provide critical legal and financial protection for individuals with special needs. But how does a special needs trust work in Texas, and when might a family need to establish one?
What Are Special Needs Trusts?
A special needs trust (SNT) is a trust specifically designed to hold assets on behalf of an individual with special needs or severe disabilities who may require government benefits, such as Medicaid or Supplemental Security Income (SSI). Because the trust holds the individual’s assets, those assets may not count toward Medicaid’s asset limits for eligibility. As a result, an individual with special needs can use an SNT to qualify for Medicaid or SSI. Special needs trusts can also use their funds to pay for certain living expenses for an individual with special needs.
How Does a Special Needs Trust Work?
In a special needs trust, the named trustee of the trust manages funds placed into the trust on behalf of an individual with special needs named as the beneficiary of the trust. Special needs trusts can distribute funds for certain qualifying expenses that can improve a beneficiary’s quality of life, such as education, transportation, personal care, and recreation. However, trusts cannot pay for other expenses, such as food or housing, without potentially jeopardizing a beneficiary’s Medicaid or SSI eligibility.
Depending on the trust’s structure, any assets remaining in the trust after the beneficiary’s death may be required to reimburse Medicaid for benefits paid to the beneficiary.
Types of Special Needs Trusts
Special needs trusts fall into three categories: first-party, third-party, and pooled trusts. A first-party special needs trust refers to a trust funded with the beneficiary’s assets, such as a personal injury award, workers’ compensation settlement, or inheritance. A third-party special needs trust refers to a trust funded with assets from parties other than the beneficiary, such as family members and friends.
A pooled special needs trust refers to a trust in which multiple unrelated beneficiaries combine or “pool” their assets for management by a qualified non-profit organization. Each beneficiary’s contributions serve as the balance of their subaccount in the trust. Pooled trusts can work better for individuals with minimal assets or who lack family members or friends who can serve as trustees.
Who May Need a Special Needs Trust?
Families should consider establishing a special needs trust for a loved one with special needs under certain circumstances, such as:
- Parents or grandparents who want to leave an inheritance to a child or grandchild with special needs
- An individual with severe disabilities resulting from an accident who may receive a substantial personal injury or workers’ compensation settlement
- Families who want to ensure continued financial support to loved ones with special needs after caregivers pass away
Common Mistakes to Avoid
Common mistakes that families with loved ones with special needs may make that may jeopardize their loved one’s benefits or the family’s financial interests include:
- Leaving an inheritance directly to a family member rather than naming their special needs trust as the beneficiary under a parent’s or grandparent’s will
- Naming a loved one with special needs instead of a special needs trust as the beneficiary under a life insurance policy, annuity, or retirement account
- Delaying the set-up of a special needs trust.
Contact Our Estate Planning Lawyers Today
When you have a loved one with severe disabilities or special needs, a trust can help protect your family’s financial interests and ensure that your loved one gets the support and care they need. Contact Carroll Law Group, PLLC today for an initial consultation with a special needs trust attorney to learn more about the benefits of these types of trusts and to discuss whether your family may need an SNT for a loved one with special needs.