Loved ones, family members, and parents of special needs individuals know they often need a unique approach in helping care for the special needs child or adult in their life. This approach is often augmented by help from government benefits established to make life easier for people with special needs, such as Medicaid and Social Security. These programs, however, become unavailable to individuals above certain asset thresholds.
To help preserve access to this much-needed medical and living expense coverage granted by the federal government, caretakers and financial providers for special needs individuals may wish to set up special needs trusts. In a special needs trust, a grantor names a trustee to administer the trust and a beneficiary, who is the special needs individual. Funds are distributed from the trust without impacting income eligibility for these government programs. Special needs trusts must not be used for living expenses or medical expenses already covered by Medicaid or Social Security, but can be used for supplemental expenses, such as job training or educational program tuition, and even luxury expenses and non-essential costs like vacations, hobbies, or home furnishings. The beneficiary never has direct access to the trust.
There are two main types of special needs trusts: first-party and third-party. The following summarizes the key differences between the two types of trusts. An estate planning attorney can help determine which type, if any, of these two trusts makes the most sense for your family.
First-Party Special Needs Trusts
In a first-party special needs trust, the individual with special needs is the person who funds the trust. Common situations in which this might occur include when the individual receives significant damages in a personal injury or another such lawsuit, a substantial inheritance, proceeds from a divorce settlement or retirement plan, or even a life insurance policy payout. These first-party trusts are governed by specific laws and rules designed to protect public benefits programs, so these are best guided by the knowledge of an estate planning attorney with special needs planning expertise.
Third-Party Special Needs Trusts
Third-party trusts are just what they sound like—a family member, such as a parent or grandparent, or another loved one can create a trust for the benefit of the individual with special needs. In a third-party trust, the third-party names the trustee or determines the rules of the trust. These trusts are similar to other trusts funded by third parties and are laid out in the grantor’s estate plans.
Speak with a Texas Estate Planning Attorney to Get Started Creating a Trust Today
Planning to care medically and financially for special needs loved ones can be difficult and frustrating, but it doesn’t have to be. The Houston estate planning attorneys at McCulloch Miller, PLLC has over 30 years of experience in a wide range of estate planning topics, including special needs planning and benefits planning. Our attorneys will approach your family’s circumstances with the care and diligence you deserve. Contact our office at 713-936-9073 to schedule a consultation with an attorney on our team.