The Special Needs Trust Spending Rules That May Impact Your Family

January 6, 2025

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We all strive to plan well for our family’s future, and making plans for a person with special needs often requires complex financial and legal decisions. With the right planning, you can ensure your loved one enjoys a high quality of life without sacrificing access to essential public benefits programs.

A Special Needs Trust (SNT) is an effective planning tool that enables families to provide long-term financial security without jeopardizing their loved one’s eligibility for government programs like Supplemental Security Income (SSI) or Medicaid. The key is to ensure that the funds are used appropriately.

Learn how SNTs work, the special needs trust spending rules that impact continuous eligibility, and how Texas Gulf Bank can help you establish reliable, secure financing for individuals with special needs.

What is a Special Needs Trust?

An SNT is a specialized legal arrangement intended to hold and disburse the assets of a person with physical, mental, or chronic illness disabilities. The SNT allows special needs individuals to access and draw funds from their trust without impacting eligibility for critical social services and government programs like SSI or Medicaid.

With a special needs trust, funds can be used to cover supplemental expenses for items, programs, and experiences that enhance their quality of life but aren’t currently covered by public assistance programs.

The two most common types of SNTs for special needs individuals are:

First-party SNT: This is funded with the beneficiary’s own assets, which are often from a personal injury settlement or family inheritance.
Third-party SNT: Established by a parent or guardian, this type of trust contains assets contributed by other family members or loved ones.

Creating the SNT for a child with disabilities is a straightforward, two-step process:

A trust is established through an attorney to provide income for the beneficiary.
A trustee is appointed to provide financial support for the beneficiary by overseeing the trust property and administration of funds.

As long as funds within the trust are managed and used in accordance with government rules for SNTs, those funds are not included in eligibility calculations for government benefits. If you have concerns about managing these funds, Texas Gulf Bank has extensive experience helping families navigate situations that pertain to your family.

Permissible Uses of SNT Funds

An SNT is intended to improve the beneficiary’s quality of life while avoiding improper cash payments or uses, which could affect their benefit eligibility. Trustees are allowed to apply SNT funds to the following types of expenses.

Supplemental Needs

Medical expenses not covered by Medicaid (e.g., dental work or specialists).
Therapies, rehabilitation, or counseling programs.
Assistive special equipment like wheelchairs or communication aids.
Educational opportunities and recreational activities.

Personal and Household Items

Clothing, furniture, and electronics.
Home modifications for accessibility.
Internet services, entertainment subscriptions, and fitness memberships.
Pay for food and meal prep to support any special dietary needs.

Transportation

Custom vehicle or other mode of transportation for the beneficiary’s use.
Travel expenses related to medical appointments or permissible vacations.

Companion Services

Caregivers or companions to assist with daily activities.
Service dog or other support animal to support the individual’s quality of life.

In all categories, the funds for these expenses are paid directly from the trust to service providers or vendors to avoid any negative impact on the individual’s Medicaid or SSI benefits.

Prohibited Uses for SNT Funds

If funds from an SNT are used for improper or illegal expenses, the individual could be deemed ineligible for current and future government assistance.

Prohibited uses include shelter costs and direct cash payments. For example, any use of trust funds for meals or housing classified by the government as “in-kind support and maintenance (ISM)” is not permissible. The result could be reduced SSI benefits by up to one-third of their current support.

Also, any direct cash payments or gift card purchases are considered income by the government and could lead to a reduction or removal of current SSI benefits. Trust funds should solely benefit the intended trust beneficiary, and any special needs trust spending that violates the rules established by the federal government may also impact benefit eligibility.

Families should work closely with knowledgeable trustees and legal advisors to maximize the benefits of an SNT and comply with strict spending rules. Families can rely on the guidance, experience, and insight of the Wealth Management team at Texas Gulf Bank to help them comply with the terms of the trust.

Ready to Help With Special Needs Trust Spending Rules

For parents, guardians, or third-party individuals interested in a Special Needs Trust for a loved one with special needs or disabilities, it’s not a process you should navigate alone.

The Wealth Management team at Texas Gulf Bank can provide the assistance you need in establishing and managing a first party or third party special needs trust. Our services help ensure that your loved one enjoys a higher quality of life by having the financial support they need without jeopardizing access or eligibility for vital government benefits.

We also provide custom trust solutions for family members and guardians in need of establishing a Texas Special Needs Trust for their loved ones. For example, our bank can serve as a trustee to help manage and properly disburse trust funds.

In addition, we collaborate with CPAs and estate planning attorneys to assist third party individuals in need of a Special Needs Trust on someone’s behalf. Our expert guidance and specialized services can help protect access to government programs and benefits by ensuring the special needs trust pays out the proper amounts in the appropriate ways.

Contact the Wealth Management team at Texas Gulf Bank for a consultation about our Special Needs Trust services. We’re ready to assist with managing trust funds, answering questions about special needs trust spending rules, and supporting the financial future of your loved one.

Let’s ensure the trust meets your family’s unique financial goals and long-term needs.