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The Dean Law Firm Blog

Monday, March 1, 2021

To Inherit or Not to Inherit: Planning to Provide for Special Needs Beneficiaries

By Julia “Jules” Pullin
Attorney at The Dean Law Firm

Many parents with children who are special needs or who rely on needs-based government assistance, such as Medicaid and Supplemental Security Income, make the heartbreaking decision to disinherit their special needs child in order to avoid disqualifying them from the much-needed assistance. Often, parents choose to give their wealth to one child over another, with the intent for the well child to care for their disabled or incapacitated sibling. Unfortunately, this plan often backfires, as the funds could run dry too soon, or the well child could mismanage the funds, or the well child could be sued and the funds intended for the disabled child are used to satisfy a judgment against the well child.

There is a middle ground between completely disinheriting your special needs child and allowing your special needs child to inherit but disqualifying them from government assistance. You can implement special needs trust planning inside your estate plan to allow your special needs child the benefit of your inheritance but also preserve their right to receive government assistance. Options available for your special needs child include:

A First Party Special Needs Trust. A First Party Special Needs Trust holds the special needs child’s own funds or funds due to a special needs child, such as litigation proceeds or an outright inheritance. A First Party Special Needs Trust can be set up by the special needs child themselves, their parent, grandparent, legal guardian, or a Court. The restrictions for a First Party Special Needs Trust is that the State of Texas is the contingent beneficiary of the trust after your special needs child, to repay the assistance given to your child. Also, the child must be under age 65 before the creation of this trust. Placing your child’s money inside this First Party Special Needs Trust allows for your child to qualify or remain eligible for needs-based government assistance by keeping their own funds separate.

A Third Party Special Needs Trust. A Third Party Special Needs Trust holds money that people want to gift to the special needs child, or to provide an inheritance to the special needs child through a Will or Trust. It is created by someone other than the special needs child, such as a parent, friend, or loving family member. Anyone can contribute to this Third Party Special Needs Trust. There is no payback provision to the State of Texas, so you can designate a contingent beneficiary after your special needs child passes away. Creating a standalone Third Party Special Needs Trust, or one inside your Will or Trust, will allow you to gift assets to your special needs child or allow your special needs child to inherit from your estate and remain eligible for needs-based government assistance.

A Pooled Trust. If an individual Special Needs Trust doesn’t make sense, a pooled trust may be a solution. A pooled trust is run by a non-profit entity that manages several special needs trusts, but sets up a special account for your special needs child. Beneficiaries may join a pooled trust even if they are over 65 years of age.

An ABLE Account. An ABLE account allows for your special needs child to place their own income and funds inside a special bank account. Up to $15,000 per year per designated beneficiary may be contributed to an ABLE account, although there is an account limit of $370,000 in Texas, and the account limit for Social Security is $100,000. The State of Texas is a contingent beneficiary to this account, after your special needs child, and distributions must be made for “Qualified Disability Expenses”. However, your special needs child can still contribute funds to this account and remain eligible for needs-based government assistance.

There are many more options available than simply disinheriting your special needs child or disqualifying your special needs child from government assistance. If you want to explore special needs planning options, you should consult with an experienced estate planning attorney.

Julia “Jules” Pullin is an associate attorney at The Dean Law Firm, PLLC, a boutique law firm practicing in estate planning, probate, guardianships, elder law, and civil appeals. Julia Dean is the managing attorney at The Dean Law Firm, PLLC and has been recognized as a Top Attorney and Leading Advisor by Acquisition International, Forbes, Newsweek, H Texas, Houstonia, and the Sugar Land Sun, and has earned Martindale-Hubbell’s Client Distinction Award. The Dean Law Firm, PLLC, has been named “Reader’s Choice for Attorneys in Fort Bend County by Living Magazine for the year 2020, “Texas’ Most Outstanding Estate Planning Boutique” by Acquisition International for the year 2019 and is also named “Best Law Firm of the Year” by Lawyer International Legal 100 for the year 2019. The Dean Law Firm is committed to bringing you peace of mind by providing thoughtful estate planning for your family.


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