If you or a loved one has a disability and receives government benefits, managing assets can be tricky. A sudden windfall, like an inheritance or settlement, could risk losing benefits like Medicaid or Supplemental Security Income (SSI). That's where a First-Party Special Needs Trust (SNT) comes in. It's a powerful tool that protects your assets while keeping you eligible for essential benefits. Let's dive into what it is and how it works.

What Is a First-Party Special Needs Trust?

A First-Party Special Needs Trust is a legal arrangement for people with disabilities. It allows them to hold and use their own assets without losing access to government benefits. Unlike other types of trusts, this one is funded by the person with the disability.

Legal Foundation

These trusts are governed by federal law (42 U.S.C. § 1396p(d)(4)(A)) and Texas-specific regulations. The rules ensure that assets in the trust don't count toward Medicaid or SSI limits.

Key Features of a First-Party SNT

• Funded by the Beneficiary: The trust is created using the disabled person's own assets, such as an inheritance, settlement, or savings.
• Age Limit: The person must be under 65 when the trust is established.
• Purpose: The trust is used to enhance the quality of life without affecting benefit eligibility.

How Does a First-Party Special Needs Trust Work?

The trust acts as a financial safety net. It protects assets while allowing the beneficiary to receive government benefits. Let's look at how it operates.

Funding the Trust

The trust is typically funded through:

• Inheritances: A relative might leave money to a disabled person.
• Settlements: Personal injury settlements often provide a large sum of money.
• Existing Assets: Savings or other personal funds can also be placed in the trust.

Trustee Responsibilities

A trustee manages the trust. This person ensures the money is used properly and complies with the law. Trustees can be family members, friends, or professional fiduciaries.

Their main duties include:

• Paying for approved expenses.
• Keeping records of how funds are used.
• Filing taxes and handling legal compliance.

Permissible Uses of Funds

The money in the trust can't be used for just anything. But it can cover many expenses, such as:

• Medical treatments not covered by Medicaid.
• Therapy, education, or job training.
• Assistive devices like wheelchairs or hearing aids.
• Personal items, entertainment, or travel.

Funds cannot be used for basic living expenses like rent or food if the beneficiary is on SSI. Improper use could reduce benefits.

Benefits of a First-Party Special Needs Trust

Creating a First-Party SNT has many advantages. It helps secure your future while providing financial flexibility.

Preserves Government Benefits

The main benefit is maintaining eligibility for Medicaid and SSI. These programs have strict income and asset limits. Without a trust, even a small amount of money could disqualify you.

Improves Quality of Life

The trust can pay for items or services that improve your standard of living. You can enjoy extras like better medical care, travel, or hobbies.

Provides Financial Security

By putting assets in the trust, you ensure they're managed responsibly. A good trustee can help stretch funds and avoid financial pitfalls.

What Happens to the Trust After the Beneficiary Passes?

A First-Party SNT has a unique requirement: the Medicaid payback. When the beneficiary dies, any remaining funds must first repay Medicaid for benefits received. After this, the rest of the money can go to other heirs, as specified in the trust.

Who Should Consider a First-Party Special Needs Trust?

This type of trust isn't for everyone. But it's a great option for people in specific situations.

Ideal Candidates

• Individuals under 65 who receive government benefits.
• Disabled people who receive a settlement or inheritance.
• Families looking to protect a disabled loved one's financial future.

Texas-Specific Considerations

Texas Medicaid rules can be complex. Working with a Texas special needs attorney ensures your trust complies with state laws.

Steps to Create a First-Party Special Needs Trust

Creating a First-Party SNT is a detailed process. Here's how to get started.

1. Consult an Estate Planning Attorney

Don't try to create a trust on your own. An attorney familiar with Texas laws will ensure everything is done correctly. They'll draft the trust and guide you through the process.

2. Draft the Trust Document

The trust document outlines how the trust will work. It must meet legal requirements and include provisions for Medicaid payback.

3. Fund the Trust

Once the trust is set up, you'll transfer assets into it. This might include money from a settlement, inheritance, or personal savings.

4. Appoint a Trustee

Choose a trustee who's reliable and understands the responsibilities. A professional trustee can be a good option if family members aren't available or experienced.

5. Manage the Trust

The trustee will oversee the trust's funds and ensure compliance with government rules.

Common Mistakes to Avoid

Creating and managing a First-Party SNT requires careful planning. Avoid these common pitfalls.

Failing to Consult an Attorney

DIY solutions can backfire. Trusts must meet strict legal standards, especially in Texas.

Improper Trustee Selection

Choosing the wrong trustee can lead to mismanagement or even legal issues. Pick someone you trust.

Misusing Trust Funds

Using trust money for non-approved expenses can cause benefit reductions or disqualification.

Conclusion

A First-Party Special Needs Trust is a powerful tool for protecting assets while maintaining government benefits. It ensures financial security, improves quality of life, and provides peace of mind for individuals with disabilities.

If you're considering a First-Party SNT, consult a Texas estate planning attorney. We can help you navigate the process and create a trust that works for you.

Call to Action

Ready to secure your financial future? Contact our office today for a consultation at 979-703-7014. We'll guide you through creating a First-Party Special Needs Trust tailored to your needs. Let's work together to protect your benefits and plan for a brighter future.