Are you concerned about the long-term financial well-being of a loved one with special needs? You’re not alone. Many families in Texas need ways to provide comfortable lives for family members with disabilities without jeopardizing their eligibility for essential government benefits. One powerful tool to help you achieve this delicate balance is a special needs trust. A special needs trust in Texas allows you to set aside funds for your loved one’s care and support while preserving their access to government programs such as Supplemental Security Income (SSI) and Medicaid. However, setting up a special needs trust involves adhering to complex legal requirements and carefully planning your finances.
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What Is a Special Needs Trust?
A special needs trust is a specific kind of legal arrangement created to benefit someone with disabilities. It resembles a secure account for safeguarding money or assets to aid a person with special needs.
Here’s how it works: someone (usually a family member or loved one) sets up the trust and places assets like money, property, or investments into it. This person is called the trustor or grantor. The person with special needs, known as the beneficiary, can then use what’s in the trust to pay for expenses that government programs like Medicaid or SSI don’t fully cover. A trustee, someone who the trustor chooses, manages the trust. The trustee guarantees proper utilization of trust assets for the special needs person’s benefit.
One of the key benefits of a special needs trust is that, if it’s set up correctly, the money or property in it is not considered the beneficiary’s assets when figuring out if they qualify for government aid. That means they can use the trust to pay for extra things they need, like specific healthcare or personal items, while still getting help from these programs.
Who Can Benefit from a Special Needs Trust?
Many situations might prompt the creation of a special needs trust. Individuals with disabilities who could potentially benefit from special needs trusts include those who are:
- Inheriting assets from others
- Receiving legal settlements or judgments
- Accumulating significant savings
- Receiving large gifts from friends or family members
- In possession of valuable assets, such as homes or investments
- Earning income that disqualifies them from government aid
- Receiving transferred assets from spouses
- Selling valuable assets, like real estate or stocks
- Starting businesses or selling their stakes in businesses
- Receiving regular payments like annuities or royalties
- Coming of age and receiving money previous in custodial accounts
- Collecting funds from retirement accounts
Types of Special Needs Trusts
There are several types of special needs trusts, each designed to meet specific needs and situations:
- First-party special needs trusts – Assets belonging to the person with special needs, often from inheritance, legal settlement, or savings, fund this trust type. Importantly, assets held in a first-party trust will not disqualify the individual from government benefits such as SSI or Medicaid. However, after the beneficiary’s death, any remaining funds in the trust could be used to repay the government for the cost of medical care provided over the individual’s lifetime.
- Third-party special needs trusts – These are established by someone other than the person with special needs, usually a parent or other family member, and funded with assets that do not belong to the individual with special needs. Unlike first-party trusts, this trust type doesn’t mandate repaying the government for medical care post-beneficiary’s death. The person who sets up the trust can specify where the remaining funds should go.
- Pooled trusts – A pooled trust is one managed by a non-profit organization. Every beneficiary holds an individual account in the trust, yet funds are combined for investment and management. Both the individual with special needs and others can contribute to these trusts. Similar to first-party trusts, the leftover funds may repay the government post-beneficiary’s death, while some may stay with the non-profit.
- Miller trusts or qualified income trusts (QITs) – States, including Texas, employ these trusts for individuals surpassing Medicaid’s income eligibility in certain cases. The excess income is placed into the trust, restoring the individual’s eligibility for Medicaid benefits. You can then utilize these funds to cover the individual’s care and additional expenses.
The Process of Establishing a Special Needs Trust
Establishing a special needs trust involves several essential steps, and having an experienced lawyer guide you through this process can be highly beneficial.
First, you’ll need to determine the type of special needs trust that will best suit your needs. This could be a first-party, third-party, pooled, or Miller trust, depending on various factors such as the source of funds and the individual’s income.
The next step is drafting the trust agreement once you choose the type of trust you want. This legal document outlines the terms of the trust, including the roles and responsibilities of the trustee, the rights of the beneficiary, and the intended use of the trust’s assets. Your attorney can prepare this documentation for you and double-check every page for accuracy.
Then, you’ll need to select a trustee. This could be a family member, a friend, a professional trustee, or a trust company. The trustee will have significant responsibilities, so choosing someone trustworthy and capable is important.
Finally, you’ll need to fund the trust. This might involve transferring cash, real estate, investments, or other assets into the trust. After setting up the trust, you must ensure proper management to meet beneficiary needs and maintain government benefit eligibility. A lawyer can help you with all of these challenges and more.
How a Special Needs Trust Can Affect Government Benefits
A special needs trust in Texas can significantly affect a beneficiary’s eligibility for government aid, primarily because assets held in such a trust do not count as personal assets of the beneficiary.
The United States means-tests several vital government assistance programs, including SSI and Medicaid. This means your eligibility for these programs depends on your income and asset levels. Someone with assets or income above a specific limit might not qualify for these programs.
When assets go to a person with special needs – perhaps through an inheritance, a gift, or a legal settlement – they can push that person’s income or asset levels above the qualifying threshold. If this happens, the individual can lose their eligibility for vital government benefits.
However, if those same assets go into a properly structured special needs trust, they are not counted as individual assets when determining eligibility for these government programs. This allows special needs individuals to continue receiving their government benefits while benefiting from the additional financial support the trust provides.
It’s important to note that a special needs trust cannot pay all expenses without affecting government benefits. Due to complex rules, partnering with an experienced attorney is vital for creating and managing such trusts.
The Role of an Estate Planning Attorney in Setting up a Special Needs Trust
Setting up a special needs trust involves dealing with intricate laws and regulations, making the role of an estate planning attorney instrumental. An attorney can use their knowledge and experience to structure the trust correctly and comply with state and federal laws. Here’s what an estate planning attorney could do for you:
- Determining the appropriate trust – Various special needs trusts are tailored to specific needs and situations. An attorney can guide you on which type of trust suits your unique circumstances.
- Drafting the trust document – An attorney can prepare your trust documents to ensure they adhere to all legal requirements. These documents will outline the trust’s terms, specifying how to utilize its assets for the beneficiary.
- Guiding you in trustee selection – Your attorney can advise you on selecting a trustee who can effectively manage the trust, explaining the responsibilities involved and the qualities to look for in a candidate.
- Funding the trust – A lawyer can help you adequately fund the trust with assets like money, property, or investments without negatively impacting your beneficiary’s eligibility for government benefit programs.
- Providing ongoing legal support – Laws and regulations change over time. An attorney can provide ongoing support to keep your trust compliant and effective even as times change.
Contact an Estate Planning Lawyer for Help
You can take steps to secure your loved one’s future today. Get started by contacting Smith Family Law for a free case review to discuss how a special needs trust in Texas could fit into your estate plan.