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Letters of intent for Texas special needs trusts

Not many people avail themselves of one of the most useful tools in estate planning for Texas parents who have special needs children -- the letter of intent. This is a document that can be attached to special needs trusts. They can be used to specify how the money in the trust is to be spent.

Perhaps more importantly, it can list the preferences of the beneficiary. Many special needs children are set in their ways and have very specific preferences when it comes to things from food to sleeping habits and everything in between. If a parent wants to make it clear that his or her child only likes macaroni and cheese on Tuesdays, the letter of intent is the place to put it.

As for the trust itself, there are two types most often used in these cases. The first is a third-party or testamentary trust which will only be used and funded upon the death of the maker of the trust. The second most common type of trust is a first-party trust that is funded by the beneficiary. For example, an accident victim with a large settlement could have a first-party special needs trust funded with the settlement money. The only caveat is that should the beneficiary of the trust die, the remaining assets can be seized by the government -- not so in a third-party trust.

It is a requirement for special needs trusts that the beneficiary be deemed disabled as defined by the Social Security Act. Since the disabled person won't own the assets, special needs trusts have the major benefit of not counting toward SSI or Medicaid benefits. Between the trust and the letter of intent, any Texas parent can have the peace of mind that his or her special needs child will be taken care of when the parent dies.

Source: thefiscaltimes.com, "Estate Planning Guide for a Special Needs Child," Sonya Stinson, July 10, 2013

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