A Special Needs Trust (also called a Supplemental Needs Trust) is an estate-planning structure designed to provide for a beneficiary with disabilities without disrupting eligibility for means-tested government benefits such as Medicaid or SSI. There are two primary types used in estate planning. A First-Party Special Needs Trust, authorized under 42 U.S.C. §1396p(d)(4)(A), is funded with the beneficiary’s own assets and must include a Medicaid payback provision. A Third-Party Supplemental Needs Trust, created under the general authority of the Texas Trust Code and federal benefits regulations, is funded with assets that never belonged to the beneficiary and contains no payback requirement. This type is commonly used by parents or loved ones to enhance the beneficiary’s quality of life while preserving benefits eligibility.
