Many Texas families have a member who suffers from a disabling birth defect, injury or illness. Planning for the long-term care of these unfortunate individuals can place a heavy burden on the shoulders of other family members. A commonly used estate planning tool that maximizes the effect of federal and state programs intended to provide financial assistance to disabled persons is known as a special needs trust.
The basics of special needs trusts
Many federal and state programs that are intended to provide financial assistance to disabled persons have financial limitations on eligibility. If the disabled person has assets that exceed the prescribed threshold, that person is not eligible to receive benefits from one or more of these programs. For example, persons with personal assets exceeding $2000 are not eligible for either Medicaid or Supplemental Security Income. This problem is solved by the creation of a special needs trust (SNT). Assets placed in an SNT are not taken into account in determining whether the net worth of the disabled person exceeds the threshold limitations on eligibility. The trust instrument must comply with regulations promulgated by the Internal Revenue Service. The assets in the trust can be used only for the beneficiary’s health care, housing, clothing, food and similar needs. An SNT can be established by a parent, legal guardian, grandparent, a court, or the beneficiary.
How does an SNT help?
An SNT has the effect of allowing a special needs individual to receive financial benefits from various government assistance programs, thereby freeing up the assets in the SNT to pay for additional living expenses of the beneficiary.
Different kinds of SNTs
Texas recognizes two kinds of SNTs: a self-funded SNT and a Third Party SNT. A self-funded SNT is funded by assets owned by the beneficiary. The most common type of self-funded SNT is a trust comprising the financial recovery from the verdict in a personal injury case in which the beneficiary was the plaintiff. A third-party SNT is funded by assets contributed by someone other than the beneficiary, such as a parent, sibling or friend.
Anyone interested in creating an SNT should consult an experienced estate planning attorney for a review of the financial circumstances of the intended beneficiary. Also, a proper SNT document should be drafted by an attorney who is knowledgeable about the legal requirements of such documents.