Special Needs Trusts

A Special Needs Trust holds assets for a person with a disability without disqualifying them from means-tested benefits like SSI and Medicaid. The reason it works is arithmetic: SSI cuts off an individual whose countable resources exceed $2,000 (42 U.S.C. § 1382(a)(3)(B)), and that figure has not moved since 1989. Assets held in a properly drafted trust are not the beneficiary's countable resource, because the beneficiary cannot compel a distribution — the trustee decides. Federal law recognizes the arrangement in 42 U.S.C. § 1396p(d)(4). You need one if a family member has a disability that qualifies them for needs-based benefits and you want to leave them an inheritance, life-insurance proceeds, or a settlement without knocking them off those benefits. The right time is the year after diagnosis, not the year before death.

Yes, and it decides who gets what is left. A third-party SNT is funded with someone else's money — typically a parent's or grandparent's inheritance. The beneficiary never owned those assets, so no payback is owed and you name who inherits the remainder. A first-party SNT (a "d4A" trust) holds the beneficiary's own money, such as a personal-injury settlement or an inheritance received outright. 42 U.S.C. § 1396p(d)(4)(A) permits it only for an individual under age 65 who is disabled as defined in 42 U.S.C. § 1382c(a)(3), and only if the State receives all amounts remaining at the beneficiary's death up to the total medical assistance paid on their behalf. A pooled trust under § 1396p(d)(4)(C) is the third option: established and managed by a nonprofit association, with a separate account for each beneficiary that is pooled for investment — often the practical answer for a smaller balance. We default to third-party whenever the money can still be re-routed, because that is the only one of the three with no payback.

For most families, both — they are governed by different statutes and solve different problems. An ABLE account under 26 U.S.C. § 529A is the beneficiary's own account: annual contributions are capped at the federal gift-tax exclusion amount under § 529A(b)(2)(B), the Texas program (administered by the Prepaid Higher Education Tuition Board under Tex. Educ. Code ch. 54, subch. J) stops accepting contributions at a $500,000 balance, and Social Security excludes the first $100,000 from SSI countable resources (POMS SI 01130.740). Above $100,000 the SSI cash payment is suspended rather than terminated, and Medicaid continues. Two limits matter: an ABLE account carries its own Medicaid payback at death under § 529A(f), and eligibility requires that the disability began before a set age. An SNT has no contribution cap, no age-of-onset test, and — if it is third-party — no payback at all. Use the ABLE as the spending account and the third-party SNT as the endowment.

Yes, and it is already in effect. The ABLE Age Adjustment Act (enacted as § 124 of the SECURE 2.0 Act of 2022) raised the age of disability onset in 26 U.S.C. § 529A(e)(1) from before age 26 to before age 46, and that amendment applies to taxable years beginning after December 31, 2025 — meaning it is live now. If your family was told years ago that your adult child did not qualify for an ABLE account because their disability was diagnosed at 30, that answer is out of date. This is the single most consequential change in special-needs planning in years, and it opened eligibility to a large group of Texans who were locked out under the old rule, including many people disabled by an accident or illness in adulthood.

Not always, and Texas law now requires the court to ask that question before it appoints anyone. Under Tex. Est. Code § 1101.101(a)(1), a court may appoint a guardian only on clear and convincing evidence — including, at subsections (D) and (E), that alternatives to guardianship and available supports and services were considered and determined not to be feasible. The alternatives are real statutory tools, not workarounds. A Supported Decision-Making Agreement under Tex. Est. Code ch. 1357 lets an adult with a disability keep legal decision-making authority while a chosen supporter helps them understand options; § 1357.055 requires only that it be signed voluntarily before two subscribing witnesses or a notary. A court-created management trust under Tex. Est. Code ch. 1301 can manage funds for an incapacitated person — § 1301.054 permits one for an alleged incapacitated person who does not have a guardian at all. Medical and financial powers of attorney and a HIPAA authorization cover much of the rest. For a young adult with significant intellectual disability, guardianship may still be right; for many others, a less restrictive tool is both more respectful and legally sufficient.

Please do not let them. A direct bequest — in a will, a life-insurance beneficiary designation, or a POD account — lands in your child's own name, and the moment it pushes their countable resources past the $2,000 SSI limit in 42 U.S.C. § 1382(a)(3)(B), the SSI payment stops and the Medicaid coverage tied to it is at risk. Note what the problem is and is not: the gift does not impose a Medicaid transfer penalty on your child, because your child is the recipient, not the transferor. The damage is simply that they now own too much. The fix is straightforward — every relative who wants to leave something to your child should direct that gift into the third-party SNT instead. We draft language that grandparents, aunts, and uncles can drop into their own estate plans without rewriting anything else.

For transfers made on or after February 8, 2006, the look-back period is 60 months under 42 U.S.C. § 1396p(c)(1)(B)(i). Special-needs families get two specific statutory exemptions from the resulting transfer penalty. Under § 1396p(c)(2)(B)(iii), assets transferred to — or to a trust established solely for the benefit of — the transferor's child who is blind or permanently and totally disabled are not penalized, at any age. Under § 1396p(c)(2)(B)(iv), a transfer to a trust established solely for the benefit of any disabled individual under 65 is not penalized. Both clauses expressly include a trust described in § 1396p(d)(4). What is not exempt: gifts to other family members, transfers made inside the window for anyone else's benefit, or funding a trust that was not drafted to meet the exception criteria. The exemptions are precise, and precision is the whole job.

The best structure for most Texas families is a co-trustee arrangement: a family member for judgment, love, and personal knowledge of your child, plus a professional or corporate co-trustee for administrative compliance and SSI reporting. Texas law makes that workable — under Tex. Prop. Code § 113.085(a) cotrustees may act by majority decision, so the trust does not deadlock. Whoever serves is held to the prudent investor standard in Tex. Prop. Code § 117.004, and under § 113.151(a) a beneficiary may demand a written accounting and sue if the trustee does not deliver it within 90 days. We also plan trustee succession across generations, because the trust needs to work long after you — and frankly long after your other children — are gone.

If they have legal capacity, yes — and this is a point where a lot of families are still working from outdated advice. For more than twenty years, 42 U.S.C. § 1396p(d)(4)(A) let only a parent, grandparent, legal guardian, or a court establish a first-party special needs trust. An adult with a disability who was fully competent had to petition a court to do what any other adult could do with a signature. Section 5007 of the 21st Century Cures Act fixed that on December 13, 2016 by adding two words — "the individual" — to the statute. A competent adult can now establish their own d4A trust, and for trusts established on or after that date no court order is needed to do it. The under-65 age limit and the Medicaid payback in § 1396p(d)(4)(A) still apply.

A Letter of Intent is a non-legal, written document that captures everything a successor guardian or trustee needs to know about your child — their diagnoses, medications, therapies, routines, triggers, preferences, favorite foods, trusted doctors, and the life you have built around them. It is not legally binding and it does not replace the trust's distribution standard, which is what actually governs what the trustee may pay for. But it is the document everyone involved in your child's life will actually read. We sit with every family we work with and draft one. It is, in my professional and personal opinion, the most important piece of paper a special-needs family creates.