Texas Special Needs Trusts

We know. Creating a trust to protect your loved one can seem overwhelming, but it doesn’t need to be difficult. Protect the future, lifestyle, and dignity of your loved one by allowing us to draft a customized special needs-focused estate plan and trust.

The guide below is a great place to start to learn the basics, and when you are ready, we are here to help you take the next step.

What is a Special Needs Trust? 

Also referred to as a supplemental needs trust, this type of trust is a legal tool to hold assets to benefit a person with special needs. Based on how the trust is drafted, it can protect your loved one’s eligibility to receive public benefits like social security.

This type of trust is tailored to a person with special needs and designed to manage assets for that person’s benefit while maximizing legal protections. The trust beneficiary does not control the use of trust assets, however, the trust assets are directed by a trustee for the individual’s needs and benefit. There are three main types of this trust: the first-party trust, the third-party trust, and the pooled trust. All three name the person with special needs as the beneficiary.

Is this type of trust necessary?

In the long term, choosing not to plan or create a special needs trust can be a disaster for your loved one.

Unless you are immortal, planning is necessary to protect your loved one. Logically, you know that.

To get beyond the special needs planning mental block, understand that the resulting impact on your loved one will be far more significant than the burden of an inconvenient task. Failure to create a special needs trust or begin planning in general  often means that your loved one will lose public benefits, and grandparents or other family members will incur the added cost and stress of their newfound job to salvage things.

If you choose not to plan–and doing nothing is making a choice not to plan– the government will impose its own plan. The rules set out by the state will mandate a government plan for your estate and the care of your loved one.

The government’s plan could select the wrong person to care for your loved one or may fail to designate anyone at all. It can also end up costing your loved one essential public benefits.

Failing to create a a plan means that you are forfeiting your priorities for the government’s priorities. The time to plan and formalize your wishes is now.

Types of Supplemental Needs Trusts

1) First Party Trust

A First Party Special Needs Trust is established with funds from the person with a disability for the sole benefit of that individual. They act as both beneficiary and grantor.  Often a first party trust is set up with an inheritance that is already in the beneficiary’s name or an accident settlement.

First Party Trusts require that any funds remaining in the trust at the time of the beneficiary’s death be used to repay the costs of government benefits. 

2) Third Party Trust

A third party trust holds funds belonging to other people who want to help the person with special needs. The third party trust is most often used by parents and other family members to assist a person with special needs.

Third-Party Trusts can hold any kind of asset belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third party trust functions like a first-party trust in that the assets held in the trust do not affect an SSI beneficiary’s access to benefits. The funds can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits, including medical expenses.

Moreover, a third-party trust does not contain the payback provision found in first-party trusts. This means that when the beneficiary passes away, any funds remaining in his or her trust can pass to other family members, or to charity, and not to reimburse the government.

3) Pooled Trust

A pooled trust can be done as first party or third party trust. The main difference is that the trusts are managed by a charity and allow beneficiaries to pool their resources for investment purposes.

Special Needs Trust Rules

The trust requires a named trustee. The trustee is responsible for make disbursements on behalf of the beneficiary but not to the beneficiary.

Distributions must be made on behalf of the beneficiary for bills, such as phone bills, utilities, transportation clothing, education, travel, and entertainment.

The beneficiary may never have direct control over the money or property in the trust. 

While these trusts are created for the benefit of the beneficiary, the beneficiary cannot access the trust funds or demand the use of trust funds in a certain way. However, if the beneficiary were to obtain assets or money directly, beneficiary’s public benefits can be reduced. The trust is designed to prevent this reduction or loss. 

What are the trustee’s duties?

The trustee has a fiduciary duty to the beneficiary. The trustee must file tax returns, provide accountings to the beneficiary, and provide accountings to SSA.

Is it necessary to have an attorney prepare a trust for my family?

It is not required, but it is recommended. Our nearby special needs attorney can advise you how best to meet the needs of the loved one with special needs, the financial implications and available safeguards for your loved one’s future.  

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