Texas Special Needs Trust Rules (2026) | Complete State Guide

1. 1. Texas is a community property state — and that changes how you fund the trust.
   Income and assets acquired during your marriage are owned 50/50 by both spouses. If you fund a special needs trust with money from a joint account, your spouse must consent to the transfer. However, inheritances and gifts are separate property — even if received during the marriage — so if you’re funding the trust with an inheritance, your spouse has no claim to it. Your attorney must trace which assets are community vs. separate property before funding the trust, and may recommend converting community property to separate property first. This is the biggest Texas-specific planning step.
2. 2. Get on the Medicaid waiver interest list NOW — the wait is measured in years, not months.
   Texas has over 170,000 people waiting for home and community-based waiver services. The HCS waiver alone has nearly 68,000 people on its interest list, with wait times stretching 10-15 years. You can put your child on the list at any age — even as an infant. Call your Local IDD Authority (LIDDA) for HCS/TxHmL, or call 877-438-5658 for CLASS, DBMD, and MDCP. Don’t wait until your child is a teenager to get in line.
3. 3. Texas doesn’t have a state income tax — and that’s a real advantage for your trust.
   Because Texas has no state income tax (constitutional prohibition, Art. VIII, Sec. 24-a), your special needs trust only pays federal income tax on investment earnings. In states like California or New York, the trust pays an additional 1–6% or more in state taxes depending on the trust’s income level. Over the life of the trust, the Texas advantage can save thousands of dollars.
4. 4. Your home has special protections — but they can disappear if you put it in the wrong trust.
   Texas homestead laws are among the strongest in the country — your home is protected from almost all creditors, regardless of value. But if you put the home into an irrevocable special needs trust, you could lose that protection. Most Texas attorneys recommend keeping the home outside the SNT. A Lady Bird deed or Transfer on Death Deed can pass the home outside probate and avoid Medicaid recovery without penalties.
5. 5. Texas has a court-created trust option that can save you money (Chapter 1301). (For first-party SNTs)
   If your child receives a personal injury settlement, inheritance, or other lump sum, Texas has a special tool called a 1301 Management Trust. It’s faster and less expensive to set up than a full guardianship of the estate, and it can include special needs trust provisions to protect benefits. Not every state has this option. If a court is already involved in your child’s finances, ask the judge about a 1301 trust with SNT provisions.
6. 6. Texas may need TWO trusts — one for income, one for assets. (For first-party SNTs)
   Texas is an “income cap” state for Medicaid. If your family member’s income exceeds $2,982 per month (2026 limit) — even by a dollar — they lose Medicaid eligibility unless you set up a Qualified Income Trust (also called a Miller Trust). That’s a separate legal document from the special needs trust. Your attorney should plan for both if there’s any chance income will exceed the cap.
7. 7. The trust can pay for groceries without reducing your child’s SSI.
   This changed in October 2024. Before that, buying food with trust money cut the SSI check. It doesn’t anymore. Shelter payments (rent, mortgage, utilities) still reduce SSI — up to about $351/month in 2026 — but the food change is a significant win for families.
8. 8. Texas was the first state to pass a supported decision-making law — use it.
   In 2015, Texas became the first state to allow adults with disabilities to keep their legal rights while getting help from a trusted supporter (Estates Code Chapter 1357). A Supported Decision-Making Agreement costs nothing to set up. The 2023 reforms (SB 1624) now require courts to consider SDM before appointing a guardian. Guardianship costs $3,000-$10,000+. Always explore SDM first.
9. 9. Schools must now tell you about waiver programs at the first IEP meeting.
   The Caytlin Handley Act (HB 1188, effective September 2025) requires Texas school districts to provide information about LIDDAs, Medicaid waivers, and interest lists at your child’s first IEP meeting. This law exists because too many families didn’t learn about waivers until high school — losing years of wait time. If your child has an IEP, make sure your school provides this information.
10. 10. Texas Medicaid estate recovery is limited — but the rules depend on which type of trust you have.
    (For third-party SNTs) — When your family member passes away, Texas can only recover Medicaid costs from assets that go through probate. Assets in a third-party trust, joint accounts, life insurance, and accounts with beneficiary designations are protected. And there’s no recovery at all if there’s a surviving spouse, child under 21, or child with a disability. A properly structured third-party trust escapes estate recovery entirely.
    
    (For first-party SNTs) — Different rule. Because this trust was funded with your family member’s own money, federal law (42 USC §1396p) requires that any funds left in the trust when they pass away must first reimburse Texas Medicaid for benefits paid during their lifetime. This isn’t estate recovery — it’s a payback clause built into the trust itself. Whatever remains after Medicaid is repaid goes to the family. This is the tradeoff for protecting benefits during your family member’s life.
11. 11. The person managing the trust (the “trustee”) has to account for every dollar — no matter what type of trust you set up.
    Whether you created a third-party trust (funded with your money) or your child has a first-party trust (funded with theirs), Texas law (Tex. Prop. Code § 113.151) gives your family the right to request a full accounting of how trust money is being spent. This isn’t optional — it’s the law. If a bank, attorney, or family member is serving as trustee and won’t show you where the money is going, that’s a red flag.

From my 15+ years helping families (including my own):

1. Funding the trust with community property without a partition agreement. You and your spouse put $200,000 from joint savings into a special needs trust. Two years later, you divorce. Your ex-spouse’s attorney argues half the trust is community property subject to division — the court could order $100,000 removed from your child’s trust. Before funding, have your attorney prepare a marital property partition agreement (Texas Family Code Sec. 4.102) converting the funds to separate property.
2. Not getting on the waiver interest list early enough. You wait until your child is 16 because you didn’t know about waivers. Now they’re #68,000 on the HCS list. At the rate slots open, they won’t get services until their mid-30s — or later. Contact your LIDDA the day you have a qualifying diagnosis. There is no minimum age. Every year you wait is a year added to the back of the line.
3. Hiring a general estate planning attorney instead of a special needs specialist. The attorney who did your will drafts an SNT that lacks proper Medicaid payback language, doesn’t address community property, and has standard distribution provisions. When your child applies for SSI, the caseworker reviews the trust — it doesn’t meet federal requirements. Benefits denied. Use an attorney who is a member of the Special Needs Alliance, NAELA, or the State Bar’s Elder Law Section.
4. Ignoring the income cap when your family member has even modest income. Your adult child receives $3,100/month in SSDI. You set up an SNT, but nobody mentions the Qualified Income Trust. When they need Medicaid long-term care, denied — income is $118 over the $2,982 cap. Without a Miller Trust (QIT), they can’t qualify. Period. Texas has no “spend down” option. If there’s any chance income could exceed the cap, get both trusts drafted together.
5. Putting the family home into the special needs trust. You want your child to always have a place to live, so you transfer the home into their irrevocable SNT. The home may lose Texas’s powerful homestead protections. If challenged by creditors, it’s now a trust asset without the constitutional shield. Keep the home outside the irrevocable SNT and use other tools — a Lady Bird deed, a separate revocable trust, or specific will provisions.
6. Not coordinating the trust with an ABLE account. You have a well-funded first-party SNT but never open an ABLE account. You miss the chance to move up to $20,000/year into an account your child can use more flexibly for qualified disability expenses. Note: Texas does recover from ABLE at death (unlike some states), so use ABLE funds for qualified expenses during your child’s lifetime rather than letting them accumulate.
7. Waiting until after 18 to address guardianship or decision-making. Your child turns 18 and you assume you can still make decisions. The hospital won’t share medical records. The bank won’t discuss accounts. You need emergency guardianship — more expensive and stressful than planning ahead. Start at 17 or earlier. If SDM is sufficient, execute a Supported Decision-Making Agreement before the 18th birthday. If guardianship is needed, file the petition before they turn 18.

The best way to avoid these mistakes? Work with an attorney who knows Texas special needs law. Find Texas attorneys →

Beyond the Trust: Other Texas Planning Steps

Guardianship: When your child turns 18, you may need legal authority to help with decisions. Texas uses “guardianship” (not conservatorship) and offers limited guardianship, supported decision-making (first in the nation, 2015), and preneed guardian declarations. Compare your options →
Medicaid Waivers: Texas has 170,000+ people on waiver interest lists (HCS, TxHmL, CLASS, DBMD, MDCP, STAR+PLUS). Contact your LIDDA to get on the list. Learn about waivers →