Many families in Denton and the Dallas-Fort Worth Metroplex have family members with a variety of special needs. As both parents and the child age, planning for the child’s financial needs becomes a very critical issue. Over the last 20 years, lawyers working with the federal government have created a very useful estate planning vehicle called a special needs trust. A special needs trust is intended to maintain the beneficiary’s eligibility for government benefits such as Medicare, Medicaid and Supplement Social Security while not diminishing the personal assets of the trust beneficiary.
What is a special needs trust?
A special needs trust is a trust that serves as a depository for assets belonging to the beneficiary. To be eligible for Supplemental Social Security Income and Medicaid, a person cannot own more than $2,000 in assets. If assets are transferred directly to a disabled child, his or her eligibility for important government assistance programs can be impaired or eliminated. A special needs trust receives a dispensation from the Internal Revenue Service such that assets placed in a special needs trust are not counted against the asset limit of $2,000.
Texas law permits two types of special needs trust: (1) a General Support Special Needs Trust and (2) a Supplemental Care Special Needs Trust. Most special needs trusts in Texas fall into the latter category. A supplemental trust provides that its assets may only be paid to the beneficiary after all government benefits have been exhausted. Assets in a general support special needs trust are intended to serve as the sole source of benefits for the beneficiary.
Establishing a special needs trust
The principal issue in establishing a special needs trust is the future financial needs and resources of the trust beneficiary. If assets of the trust beneficiary are used to fund the trust, the trust is known as a Self-Settled Special Needs Trust. If assets of another person, such as a family member or friend are use, the trust is known as a Third Party Special Needs Trust. The two types of trusts have small differences, and each requires a particular type of trust instrument.
One of the most important decisions in establishing a special needs trust is the selection of a trustee. Many people nominate a relative or a close friend. Another option is using a professional trustee, such as a bank or trust company, to fill that role.
Anyone interested in establishing a special needs trust should consult an experienced estate planning lawyer for advice. A knowledgeable attorney can provide advice on the type of special needs trust that best suits the family’s needs and ensure that the trust document meets all requirements of both state and federal law.