Planning for a Child with Special Needs in Texas
Planning for a Child with Special Needs in Texas
If you have a child with special needs, your estate plan carries an extra level of importance—and complexity. The wrong move can disqualify your child from government benefits they depend on. The right plan ensures they're cared for long after you're gone, without losing access to critical programs.
At Dickey Law Group, we help families in The Woodlands area create estate plans that protect children with special needs. Here's what every Texas parent in this situation should understand.
Why Standard Estate Planning Falls Short
The instinct most parents have is simple: leave everything to your child. But for a child with special needs who receives government benefits like Medicaid or Supplemental Security Income (SSI), a direct inheritance can be devastating.
Here's the problem: Medicaid and SSI are means-tested programs. That means your child qualifies only if their countable resources stay below strict limits—typically $2,000 for SSI. If you leave your child $100,000 in your will, they'll lose their benefits until that money is spent down to nearly nothing.
Those benefits often include:
- Medicaid — Covers healthcare, therapy, medications, and sometimes residential care
- SSI — Provides monthly income for basic living expenses
- Home and community-based services — Waiver programs that can take years to get on
Losing these benefits—even temporarily—can be catastrophic. The solution isn't to disinherit your child. It's to use a special needs trust.
How a Special Needs Trust Works
A special needs trust (also called a supplemental needs trust) holds assets for your child's benefit without counting those assets as your child's own resources for benefit eligibility purposes.
The trust can pay for things that government benefits don't cover, such as:
- Education and tutoring
- Recreation and vacations
- Personal care items
- Electronics, furniture, and clothing beyond basic needs
- Transportation (including a vehicle)
- Out-of-pocket medical and dental expenses
The key rule: the trust should supplement, not replace government benefits. The trustee can't use trust funds to pay for food or shelter directly in most cases, as those payments can reduce SSI benefits. This is a technical area where proper drafting matters enormously.
First-Party vs. Third-Party Special Needs Trusts
There are two main types of special needs trusts, and the difference matters:
Third-Party Special Needs Trust
- Funded with your money (or anyone's money other than the beneficiary's)
- You create it as part of your estate plan
- No age limit for the beneficiary
- When the beneficiary dies, remaining funds go to whoever you name—they do not have to repay Medicaid
- This is the most common type for parents planning ahead
First-Party Special Needs Trust
- Funded with the beneficiary's own money (such as an inheritance received directly, a personal injury settlement, or back-due benefits)
- Must be established before the beneficiary turns 65 (under current federal rules)
- When the beneficiary dies, remaining funds must first repay Medicaid for benefits received during the beneficiary's lifetime
- Often called a "(d)(4)(A) trust" after the federal statute that authorizes it
If your child unexpectedly inherits money directly—say, from a well-meaning grandparent who didn't know about the special needs trust—a first-party trust can be created to rescue the situation and preserve benefits. But a third-party trust set up in advance is always the better approach.
Choosing the Right Trustee
The trustee of a special needs trust has a difficult job. They need to:
- Understand the complex rules around SSI and Medicaid eligibility
- Make thoughtful spending decisions that improve your child's quality of life
- Keep detailed records of every expenditure
- Avoid payments that could jeopardize benefits
- Manage and invest trust assets responsibly
Many parents name a family member as trustee—a sibling, aunt, uncle, or close family friend. That can work, but the person needs to understand the rules or be willing to learn them. A single mistake—like writing a check directly to your child for rent—can trigger a benefits reduction.
Other options include:
- Professional trustee or trust company — They know the rules but charge fees, typically a percentage of trust assets annually
- Co-trustees — A family member paired with a professional trustee, combining personal knowledge with technical expertise
- Pooled trust — A nonprofit organization manages the trust alongside funds for other beneficiaries with disabilities. This can be a good option for smaller trusts where professional management fees would eat up too much of the balance.
ABLE Accounts: A Valuable Supplement
Texas participates in the ABLE (Achieving a Better Life Experience) program, which allows individuals with disabilities that began before age 26 to save up to $100,000 without affecting SSI eligibility (and even more without affecting Medicaid in most states).
ABLE accounts can be used for qualified disability expenses, including:
- Education
- Housing
- Transportation
- Health and wellness
- Assistive technology
- Employment support
An ABLE account doesn't replace a special needs trust—it supplements it. The contribution limits are relatively modest (tied to the annual gift tax exclusion), but the account offers flexibility that a trust doesn't. Your child can even manage their own ABLE account, which promotes independence.
The Letter of Intent
This isn't a legal document, but it may be the most important thing you write. A letter of intent is a detailed guide for whoever will care for your child after you're gone. It should include:
- Your child's daily routine and preferences
- Medical history, medications, and healthcare providers
- Behavioral triggers and calming strategies
- Educational history and current programs
- Social relationships and activities
- Religious or cultural practices
- Your hopes and wishes for your child's future
Update this letter regularly. Your child's needs and preferences will change over time, and the people who step in after you need current information.
Don't Leave Your Child's Future to Chance
Planning for a child with special needs requires specialized knowledge. A generic estate plan—or worse, no plan at all—can undo years of careful benefits planning in an instant. The good news is that with the right legal structures in place, you can provide for your child's future while preserving every benefit they're entitled to.
Contact Dickey Law Group today to schedule a consultation. We serve families throughout The Woodlands, Spring, Conroe, and the Houston metro area. Call (832) 521-4414.