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Families who have loved ones with disabilities often worry about how to provide long-term financial support without jeopardizing eligibility for government programs. A special needs trust (SNT) is one of the most effective solutions. These trusts enable families to set aside money or property to enhance the quality of life while maintaining access to vital benefits, such as Supplemental Security Income (SSI) and Medicaid. To work properly, however, special needs trusts must meet strict requirements under both federal and Texas law.
What Is a Special Needs Trust?
A special needs trust is a legal arrangement that holds assets for the benefit of a person with a disability. Unlike giving assets directly to the individual, a properly structured SNT prevents those funds from being counted as available resources that could disqualify them from government assistance.
The purpose of the trust is to supplement, not replace, public benefits. Trust funds can be used for expenses such as education, transportation, therapy, and recreation—costs that enhance quality of life but exceed the basic support provided by SSI or Medicaid. For families, an SNT offers peace of mind by ensuring their loved one will be cared for even when they are no longer able to provide that care themselves.
Types of Special Needs Trusts in Texas
There are several kinds of special needs trusts, each designed for different situations:
- First-Party Special Needs Trust–Funded with the beneficiary’s own assets, such as a personal injury settlement or inheritance. Federal law requires that any funds remaining at the beneficiary’s death be used to repay Medicaid.
- Third-Party Special Needs Trust–Funded with assets belonging to someone else, usually parents or grandparents. Unlike first-party trusts, these do not require Medicaid payback.
- Pooled Trust–Managed by a nonprofit organization, with individual sub-accounts for beneficiaries. Pooled trusts can be a cost-effective option for families who may not have large sums to set aside but still want to protect benefits.
Key Legal Requirements Under Texas and Federal Law
To comply with federal rules and the Texas Estates Code, special needs trusts must meet several requirements:
- The beneficiary must qualify as disabled under Social Security standards.
- The beneficiary cannot have direct control over the trust funds.
- Trust funds must be used only for supplemental needs, not for basic necessities such as food and shelter.
- First-party trusts must include a Medicaid payback clause.
- The trust must be properly drafted and administered to avoid disqualification from SSI or Medicaid.
Because both state and federal rules apply, small mistakes in drafting or managing an SNT can create significant problems.
Benefits of a Properly Structured SNT
When created and managed correctly, a special needs trust provides significant advantages:
- Preserves eligibility for critical programs such as SSI and Medicaid.
- Ensures funds are available for extra needs that improve the quality of life.
- Provides a clear, legally recognized plan for managing resources.
Reduces the risk of family conflict by setting out clear instructions.
These benefits make SNTs a vital resource for many families caring for individuals with disabilities in Texas.
Common Mistakes to Avoid
Unfortunately, special needs trusts are complex, and errors can undermine their purpose. Some of the most common mistakes include:
- Naming the beneficiary as trustee which gives them direct access to assets.
- Using trust funds for housing or food in ways that can reduce SSI benefits.
- Leaving out the Medicaid payback clause in a first-party trust.
- Failing to review and update the trust to reflect changes in law.
Even minor missteps can result in the loss of benefits, which is why careful planning and proper administration are essential.
Why Families Benefit From Legal Guidance
Drafting a special needs trust that meets both federal and Texas requirements is not a do-it-yourself project. It requires precise language, knowledge of Medicaid and SSI rules, and ongoing compliance. Families often find that working with an estate planning attorney provides peace of mind, knowing the trust will protect their loved one without unintended consequences. With legal guidance, families can avoid mistakes that might otherwise result in reduced benefits or leave assets vulnerable.
At the Law Office of Carey Thompson, we assist families across Dallas–Fort Worth in establishing and managing special needs trusts that offer lasting protection. Contact us today to learn how we can help you create a plan that safeguards your loved one’s future.