If you are an individual with a special needs child, a trust can be a critical estate planning tool. A trust can provide financial security for your child, help them manage their affairs, and protect their privacy. Below you will find more information on special needs trusts in Texas and how truly beneficial they can be to your family.
What is a Special Needs Trust?
A special needs trust, also referred to as a supplemental needs trust, is a legal arrangement in which a person or organization, called the trustee, holds property for the benefit of another person, called the beneficiary. The trustee can be either a friend or family member of the beneficiary or a professional trustee hired to manage the trust. The trust document specifies how the property is to be used for the beneficiary’s benefit and outlines the trustee’s duties and responsibilities.
Why Do You Need a Special Needs Trust?
A special needs trust allows you to set aside money for a loved one with a disability while still maintaining their eligibility for government benefits. The trust can be used to pay for things like housing, transportation, and medical expenses that are not covered by Medicaid or other government programs. It is important to set up a special needs trust if you want to make sure your loved one has the best possible quality of life.
Special Needs Trusts and Government Assistance
As an estate planning tool, special needs trusts are becoming more and more popular. But what many people do not realize is that special needs trusts can also be helpful in preserving government benefits. This is especially important in Texas, where government benefits are a key source of support for many families.
A special needs trust can help ensure that a person with special needs continues to receive important government benefits like Medicaid and Social Security Disability Insurance (SSDI). The trust can be funded with money from the person’s own assets, or from the assets of another person or organization. And best of all, as we just mentioned, a special needs trust does not affect a person’s eligibility for government benefits.
How Do You Set Up a Special Needs Trust in Texas?
The first step is to speak with an attorney who specializes in trusts and estates. The attorney will help you create the trust document and ensure that it meets all of the requirements set by the state of Texas.
For example, the laws state that the trust must be established with the written consent of both the beneficiary and the legal guardian if one has been appointed. The trust must also be created for the exclusive benefit of the beneficiary, and cannot be used to benefit the parents or other relatives of the beneficiary. Finally, the trustee of the trust must be a disinterested party who does not have a financial interest in the trust. The trustee must use the funds for the benefit of the disabled person, and cannot use them for their own benefit.
Types of Special Needs Trusts in Texas
There are three (3) different types of special needs trusts that can be used in Texas, and each type of trust has its own unique features:
- First-Party Special Needs Trust: First-Party Special Needs Trusts (FPSNTs) in Texas are created to hold and manage the assets of a person with a disability, who is also the beneficiary of the trust. The trust is established and funded by the person with a disability (the “first party”), and can be used to supplement, but not replace, public benefits that the beneficiary currently receives.
- Third-Party Special Needs Trust: A Third-Party Special Needs Trust is a trust established for the benefit of an individual with disabilities who is not the beneficiary of the trust. The trust is established by a third party, such as a family member or friend, and the trust funds can be used to provide supplemental needs that are not provided through government benefits. The trust must be administered by a trustee who is not the disabled beneficiary and must comply with specific IRS regulations.
- Pooled Special Needs Trust: Pooled trusts are a type of special needs trust that allows beneficiaries to pool their resources. This can be helpful because it allows the beneficiaries to have more power when negotiating for services and goods. The trust funds may also be used for investment purposes. Pooled trusts are managed by a charity and can be either set up as first-party pooled trusts (set up by the beneficiary) or as third-party pooled trusts (set up by someone else on behalf of the beneficiary).
What Types of Property Can be Placed in a Special Needs Trust?
There are many types of property that can be placed in a special needs trust. The most common type of property that is placed in these trusts are assets such as cash, stocks, and bonds. However, there are other types of property that can also be placed in a special needs trust. These include real estate, life insurance policies, and annuities.
One thing to keep in mind when placing property in a special needs trust is that the trust must be established under Texas law. Additionally, the trustee of the trust must be a resident of Texas.
What Happens if the Trust Beneficiary of a Special Needs Trust Dies?
If the trust beneficiary of a special needs trust dies, the trustee must distribute the trust assets according to the terms of the trust. If the trust is funded with the beneficiary’s own money, the trustee may distribute the assets to the beneficiary’s estate. If the trust is funded with someone else’s money, the trustee may distribute the assets to a successor or other appropriate party mentioned in the trust document.
Need Help Setting Up a Special Needs Trust?
As you can see, a special needs trust can be a valuable asset for those with disabilities and their families. We thought it is important to understand the different types of trusts available and how they can be used to provide for a loved one’s future, hence this article. If you are considering setting up a special needs trust, please consult an attorney at Kazi Law Firm. We specialize in this area of law and would be happy to help you.