Parents can leave money to a child with a disability in a specialized trust, commonly called a special needs trust, without jeopardizing their medicaid benefits.
Even a child that has money that is legally theirs, such as an inheritance, life insurance policy, or lawsuit settlement that went directly to the child (at any age), can preserve their eligibiilty for medicaid by moving the money into a special needs trust.
The catch is that a trust which holds money that belonged to the individual with the disability must provide for payback to the state medicaid agency if there is money left in the trust at the death of the individual. A trust that holds money that came from other people does not have to pay back medicaid.
A smart way to maximize funds is to have two separate trusts if the individual with a disability has money to be put into the trust. One trust would hold only the individual’s money, and the other trust would hold all money from parents, grandparents, inheritances, beneficiary designations, etc.
Because a trustee of a special needs trust has total discretion to whether to spend any money from the trust, the trustee of the non-payback trust can hold all money until the payback trust is exhausted. In other words, spend money from the payback trust first, and only after that trust is depleted spend money from the non-payback trust. This will maximize funds available for the individual and also allow money left at the end of the individual’s life to go to other family members or to a charity of the creator’s choice.
For more information about how to plan for your own special needs child, call the Law Office of Pamela Parker for an appointment (serving special needs families throughout Texas). Dial 
512-804-9934 to set it up.