Houston Estate Planning and Elder Law Attorney Blog
Leaving money outright to a loved one with a disability can backfire. Supplemental Security Income (SSI) and Medicaid impose strict asset caps—usually $2,000. Exceed that limit, and benefits vanish until funds deplete. A carefully drafted special needs trust (SNT) provides extra resources while preserving public assistance. Consult an Austin estate planning and probate lawyer at McCulloch & Miller, PLLC to structure the trust correctly.
Why Standard Inheritances May Hurt Benefit Eligibility
SSI and Medicaid count cash, investment accounts, and even modest savings as resources. A direct inheritance pushes the beneficiary over the threshold, forcing them to spend down funds on basic needs those programs once covered. An SNT owns the assets instead, so they do not count toward eligibility. Because Texas participates in Medicaid estate recovery, bypassing the beneficiary’s name on the title also prevents the state from later demanding reimbursement.
Key Features of a Third-Party Special Needs Trust
A third-party SNT uses someone else’s money—typically parents or grandparents—to support the beneficiary. Major provisions include:
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A discretionary distribution standard allowing payments for education, therapies, travel, and entertainment.
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A prohibition on disbursing cash directly to the beneficiary, which could count as income.
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Remainder beneficiaries who inherit unused funds when the primary beneficiary dies, avoiding Medicaid payback.
Texas law lets you appoint a “trust protector” who can replace an underperforming trustee or tweak administrative language without going back to court—an extra layer of security families appreciate.
Funding Strategies That Keep the Trust Sustainable
Parents often blend life-insurance proceeds, retirement-account beneficiary designations, and periodic gifts. Naming the trust as life-insurance beneficiary avoids probate and delivers a lump sum. For IRAs, consider leaving them to a standalone retirement-benefits trust designed to stretch required minimum distributions over the beneficiary’s life, limiting taxes. Grandparents can funnel annual exclusion gifts—currently $18,000 per donor—into the SNT without filing gift-tax returns, growing the fund steadily. Appreciated stock works well too; when sold inside the trust, capital-gains tax may be lower if the trustee times sales against the beneficiary’s modest income bracket.
ABLE Accounts and First-Party Trusts—When They Make Sense
An Achieving a Better Life Experience (ABLE) account lets the beneficiary—and friends or family—contribute up to $18,000 per year while the balance (up to $100,000 for SSI purposes) stays outside resource limits. Use an ABLE account for everyday expenses like groceries or rent, and reserve the SNT for larger, occasional purchases. If the beneficiary already owns assets—perhaps from a court settlement—a first-party SNT shelters that money. First-party trusts require a Medicaid payback clause, but they still protect benefits and offer professional management.
Naming a Trustee Who Understands Disability Issues
Administering an SNT requires vigilance. The trustee must track benefit rules, preserve records, and prepare annual accountings. Choose an individual with financial skills and empathy, or appoint a professional trustee such as a bank or nonprofit experienced in special-needs administration. Always designate an alternate in case the primary trustee steps down. Adding a care manager—often a social worker—gives the trustee insight into evolving medical or educational needs.
Partnering With an Austin Probate Lawyer for Compliance
An Austin probate lawyer drafts trust language that meshes with Social Security and Medicaid guidelines. The lawyer also coordinates with financial planners to manage investments and files required notices with state agencies when funding occurs. Periodic legal check-ups ensure the trust keeps up with changing regulations, such as shifts in SSI income-exclusion rules or Texas Medicaid waiver programs.
Empowering Your Loved One Without Compromising Support
An SNT funds art classes, adaptive technology, and vacations—enhancements that government programs rarely cover. Pairing the trust with an ABLE account offers day-to-day flexibility, while a solid trustee team handles paperwork and investments. Your loved one enjoys a richer life while core benefits stay intact. Secure that future by calling McCulloch & Miller, PLLC at (713) 333-8900 or visiting us online to consult with an experienced Austin probate lawyer who values dignity and independence.