When you have a loved one with disabilities, there’s a lot that goes into planning for their future. You want to help provide for them financially, but you don’t want money or assets to interfere with their eligibility for public benefits.
It’s hard enough to cover their health costs, let alone figure out their finances should something happen to you.
That is why special needs trusts help so much. These specialized accounts supply vital support for supplemental needs without messing with benefits programs.
A special needs trust, also called a supplemental needs trust or SNT, is a personal legal arrangement allowing another person to manage and hold assets in trust for a disabled beneficiary needing public assistance.
SNTs can significantly enhance beneficiaries’ quality of life by providing funds for disability-related services and expenses not sufficiently covered by needs-based benefit programs.
An SNT is a crucial planning tool permitting beneficiaries to maintain eligibility for Supplemental Security Income, Medicaid, housing assistance, and other public aid while accessing funds held in trust to cover supplementary support related to their disability.
There are three standard special needs trusts in estate planning.
A first-party special needs trust (self-settled trust) is funded with the beneficiary’s assets. Proceeds often originate from a personal injury settlement, disability benefits award, inheritance from a family member, or other assets owned by the individual with disabilities.
However, these trusts have one drawback – under certain circumstances, the beneficiary’s estate may need to reimburse Medicaid with funds remaining in the trust after the beneficiary’s death – a requirement not applicable to third-party SNTs.
A third-party special needs trust is funded with assets belonging to someone other than the disabled beneficiary. Typically, a family member or other third party who wants to provide supplemental support funds the trust so the special needs beneficiary won’t lose access to public benefits.
The trust creator (settlor) can also retain continuous oversight over the administration of trust funds if desired.
A pooled SNT allows multiple special needs beneficiaries to have separate accounts within a single trust administered by a nonprofit organization.
While more restrictive rules may apply regarding allowable expenses, a pooled trust can provide specialized oversight. It may be more affordable than privately drafting and administering a standalone SNT, especially when contributing fewer assets.
The nonprofit trust manager handles ongoing administration and compliance assurance for the beneficiaries.
A correctly structured SNT allows disabled individuals deemed eligible for means-tested public assistance programs like Medicaid, SSI, Section 8, and SNAP to access supplemental private funds that enhance their quality of life without jeopardizing these vital benefits.
Key reasons families may choose to establish a special needs trust include:
An SNT can significantly improve the beneficiary’s quality of life through careful compliance and coordination by funding therapies, transportation, personalized housing, education costs, recreation, and other expenses.
Properly funding and establishing a legally compliant SNT requires the help of a special needs estate planning attorney to ensure public benefits are maintained.
Key steps include:
Familiar sources used to fund special needs trusts include court settlements, inheritances, assets from divorce proceedings, life insurance payouts, Social Security back payments, military survivor benefits, and third-party family contributions.
Only a properly drafted SNT by an experienced special needs planning attorney can ensure trust-asset management will not cause ineligibility for vital government assistance. Maintaining SNT compliance also requires unique legal expertise.
Choosing an appropriate trustee with the capacity and commitment to manage trust funds is essential. Some specialize in administering special needs trusts. Family or friends may serve if meeting legal standards.
Once legally executed, the settlor must correctly fund and administer the trust to achieve the intended benefits for the beneficiary. These duties may require liquidating and repositioning assets under the guidance of counsel.
Key long-term success factors include designating backup trustees, retaining experienced legal counsel, taking great care to avoid basic compliance mistakes, authorizing trust expenses, and maintaining thorough documentation.
While a special needs trust cannot directly replace government benefits, it can pay for a wide range of disability-related services and products not sufficiently covered by programs like Medicaid and SSI.
Allowable SNT expenses may include:
Strict record-keeping and oversight are necessary here. A Texas estate planning attorney can help you with accounting and funding compliance issues.
Attempting to draft SNT instruments or managing trust matters on your own places beneficiaries at significant risk of losing access to vital support.
Partnering with reliable Texas estate planning attorneys allows for creating strong, compliant, and effective trust documents that provide an enhanced quality of life for a loved one’s unique needs.
Contact the dedicated trust attorneys at Your Legacy Legal Care for a consultation today. Our law firm has many years of experience advising Texas families on SNT funding strategies, public benefits preservation, and developing customized care.
Kimberly Hegwood is the Managing Attorney of Your Legacy Legal Care, a Houston estate planning law firm. With more than 25 years of experience practicing law in Texas, she represents clients in a wide range of legal matters, including elder law, asset protection, estate planning, Medicaid crisis planning, probate, guardianship, and other estate planning practice areas.
Kimberly received her Juris Doctor from the South Texas College of Law and is a member of the State Bar of Texas.
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