Texas Special Needs Trust: How to Plan for the Future

October 27, 2023

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If you’re a family member or guardian of a person with special needs, planning for their financial future is of utmost importance. You want peace of mind and reassurance that your loved one will always have access to the care and financial resources they need well after you’re gone.

Many individuals with special needs rely on government programs like Medicaid or Supplemental Security Income (SSI) to cover essential medical expenses and daily living costs.

However, the fear of losing these Social Security government benefits often prevents families from leaving an inheritance or valuable property to their special needs children or relatives.

A Special Needs Trust is an effective estate planning resource, allowing parents and guardians to provide ongoing financial support to special needs individuals while safeguarding their vital government benefits.

Learn about the three different types of Special Needs Trusts available in Texas, the benefits each one offers, and how the Wealth Management team of Texas Gulf Bank can guide you through each step of the Texas Special Needs Trust process.

Understanding a Texas Special Needs Trust

The long-term care of a special needs or disabled individual can vary greatly, so there are a few different types of trusts to choose from.

First-Party Trusts

A first-party trust is owned by a person with special needs and holds their personal assets such as a family inheritance, injury settlement, court damages, or other financial holdings. This option is an optimal choice for an individual who may be disabled or have special needs but is able to make legal and medical decisions for themselves.

The primary advantage of a first-party trust is that it allows a special needs or disabled individual to preserve their assets for long-term supplemental needs without jeopardizing any current or future government benefits. However, because of payback provisions, any remaining funds must be used to repay the government for the benefits received, upon the beneficiary’s death.

Third-Party Trusts

These trusts are created by the family members, guardians, or third-party individuals of a person with special needs or disabilities. They may be funded with assets such as cash, investments, or life insurance policies.

These trusts can receive contributions throughout the lifetime of the beneficiary and may be funded by anyone, including parents, siblings, or grandparents.

The most important distinction of a third-party trust is that it does not require payback provisions, meaning any remaining assets may be distributed to surviving family members or specific charities when the beneficiary dies.

In addition, a third-party trust preserves the current government benefits of a person with a disability without impacting their future eligibility for SSI or Medicaid.

Pooled Trusts

For those who do not have enough assets to warrant an individual first-person or third-party trust, a pooled trust may be a more viable option. Pooled trusts are designed to hold the assets of multiple special needs individuals and are typically managed by nonprofit organizations.

Pooled trusts offer financial management and investment expertise, helping to ensure that the funds are used to meet the beneficiary’s supplemental needs while still preserving their eligibility for public benefits.

However, pooled trusts do include a payback provision, meaning the amount of money remaining after the death of the beneficiary will be used to repay the government for the benefits received.

Sometimes, a court-ordered trust may be necessary for special needs or disabled individuals who have inherited funds or been granted settlement money from a court proceeding.

Benefits of Special Needs Trusts

Choosing a Special Needs Trust for an individual with special needs or disabilities offers several key benefits, both for the person and their parents and guardians who want to ensure their best possible care.

Preserve Government Benefits: The primary advantage of SNTs is that they allow individuals with special needs to retain their essential government benefits, such as Medicaid or SSI, while also benefiting from the assets held in the trust.

Asset Protection: Establishing an SNT may protect the finances of the beneficiary from possible exploitation, misuse of funds, or creditors. This type of protection can give individuals and their relatives peace of mind that their long-term financial security is potentially set.

Supplemental Needs Trusts: A Special Needs Trust is specifically designed to cover supplemental needs beyond what government programs provide. This may include extra medical expenses, therapies, education, transportation, and more.

Professional Guidance: Setting up a special needs trust can be complex, involving legal and financial intricacies. Working with a special needs trust attorney or an estate planning attorney is essential to ensure the trust may be structured correctly.

How a Special Needs Trust Works

A trust is set-up through your attorney to provide income for your beneficiary.
A trustee is appointed by you to provide financial support for your beneficiary by overseeing the trust property and administration of funds.

Partner With Texas Gulf Bank for Special Needs Trusts

If you’re a parent, guardian, or third-party individual considering a Special Needs Trust for a person with special needs or disabilities, you don’t have to navigate the process alone.

The Wealth Management team at Texas Gulf Bank can provide you with expert guidance and assistance in establishing and managing your trust. You gain comfort and peace of mind that your loved one will receive the financial support they need without compromising their eligibility for receiving government benefits.

For family members and guardians in need of establishing a Texas Special Needs Trust, our bank can assist with customized trust solutions that best fit your family. For example, we can serve as a trustee to assist with overseeing the trust property and securing the administration of funds.

For third-party individuals responsible for setting up a Special Needs Trust on someone’s behalf, Texas Gulf Bank offers specialized services and expert guidance to protect both government benefits and assets. We collaborate with CPAs and estate planning attorneys to create trusts that align with your client’s unique financial situation and goals.

Contact the Wealth Management team at Texas Gulf Bank to learn more about our Special Needs Trust services. We are ready to help you protect the financial future of your loved ones.

*Consult your tax advisor for how an estate plan or trust might benefit you depending on your particular tax situation.