Special Needs Trusts

Special Needs Trusts, also called Supplemental Needs Trusts, are extremely important planning tools for children and adults with disabilities. They are designed to provide supplemental goods and services above the levels of those provided by Supplemental Security Income (SSI), but without running afoul of the resource and income limit rules for SSI and Medicaid eligibility. 

Very specific language is required in the trust documents, and distributions from the trusts must be made carefully to avoid disqualification from benefits. But these specialized trusts can dramatically improve the quality of life of your loved one, or for yourself, if you meet the SSI definition of “disabled.”

Basic Forms of Special Needs Trusts

• Self-Settled Trusts: Also called “(d)(4)(A) trusts,” are created to hold the disabled person’s own assets, such as a direct inheritance, gift, or personal injury recovery. The trust can be created by the disabled individual him/herself, family members, or a court. These trusts are irrevocable, and they require that Medicaid be repaid at the individual’s death for public benefits received from the agencies.
• Third-Party Trusts. These trusts are funded with the assets of people other than the disabled individual. The trust can be set up either through a family member’s Will (as an irrevocable trust) or during the lifetime of a family member (usually as a revocable trust), thus allowing others to make gifts to the disabled individual via the trust. There is no Medicaid payback requirement for third-party trusts; the trust creator can designate who is to receive any leftover money after the disabled individual’s death.
• Pooled Trusts. Also called “(d)(4)(C) trusts,” are trusts in which the trust fund of an individual is “pooled” with those of other disabled individuals, for joint management by an approved non-profit organization. Each beneficiary has a separate account from which distributions are made. Pooled trusts may be funded with the disabled individual’s own money or with third-party money. The Arc of Texas is the most well-known administrator of pooled special needs trusts in Texas. Use of a pooled trust is attractive because the beneficiary gets the benefit of professional trustees administering the special needs trust, with a fairly low required minimum deposit into the trust.

State-Specific Rules and Restrictions

Each state administers its own Medicaid program and has its own requirements for what qualifies as a special needs trust and for what distributions are acceptable. In fact, there are very strict rules on what the funds in the trust can be used for. Generally, the trust payments cannot pay for food or shelter for the trust beneficiary, and the trustee cannot distribute cash or gift cards to the beneficiary. 

Running afoul of either (i) the qualifications to establish a special needs trust or (ii) the restrictions on distributions will cause the individual to lose SSI and Medicaid eligibility, so choosing a knowledgeable and dedicated trustee is essential to this planning. But a properly established and administered trust can provide for clothing, transportation, travel, entertainment, upgrades in living conditions, and more to better the life of the individual with special needs. All while the disabled individual retains his or her government benefit payments.

Work With Experienced Texas Estate Planning Attorneys

Caring for a family member with special needs involves unique medical, financial, social, and legal issues. If you have a family member with special needs, contact the Hammerle Morris Law Firm to discuss your individual situation and whether the preparation of a special needs trust is right for you.