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New Rules for Special Needs Trusts in 2025: What Texas Families Need to Know

Special Needs Trusts (SNTs) are essential tools for families who want to protect a loved one’s eligibility for government benefits like SSI or Medicaid, while still providing financial support. But with changing federal guidelines, state enforcement, and updated IRS and SSA interpretations, families must stay alert.

In 2025, several new rules for special needs trusts have come into effect—impacting how these trusts are created, managed, and reported in Texas and beyond. At The Lange Firm, we help families establish compliant and flexible trusts tailored to their loved ones’ futures.

This blog breaks down what has changed, what remains the same, and how to ensure your SNT is future-proof.

What Is a Special Needs Trust?

A Special Needs Trust is a legal arrangement that allows a person with a disability to receive income or assets without disqualifying them from need-based government programs like:

• Supplemental Security Income (SSI)

• Medicaid

• Section 8 housing

• SNAP or food assistance

Instead of owning the assets directly, the individual benefits from distributions made by a trustee. The trust is designed to supplement—not replace—these benefits by covering:

• Housing and care upgrades

• Transportation

• Education

• Recreation

• Out-of-pocket medical expenses

What Changed in 2025? Key Rule Updates for SNTs

The start of 2025 brought important updates from the Social Security Administration (SSA), IRS guidelines, and Medicaid planning policies. Here’s a breakdown of what’s new.

1. Digital Assets Must Be Included in Trust Planning

As of 2025, federal and Texas estate planning guidance recommends that digital assets—such as cryptocurrency, online accounts, and virtual property—be explicitly addressed in the trust.

Why it matters:

• Failure to address digital assets could trigger questions of ownership

• SSA is increasingly reviewing how these assets are titled and used

• Texas trusts must now account for fiduciary access under Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA)

At The Lange Firm, we now include specific digital asset clauses in every new special needs trust.

2. Pooled Trust Oversight Requirements Have Increased

Pooled Trusts, which are managed by nonprofit organizations and used by many low-income disabled adults, are now subject to:

• More transparency rules

• Annual disclosure requirements for fees and investment practices

• SSA and CMS audits for large pooled accounts

If your family has assets in a pooled trust, 2025 rules require additional documentation of the trust’s management and beneficiary expenditures.

3. New Medicaid Lookback Interpretations

Texas Medicaid is now reviewing distributions made from SNTs to family caregivers and cash equivalents more strictly. Key 2025 developments:

• Direct payments to family members for caregiving must have documentation of services provided

• Gift cards or cash distributions may be treated as unearned income

• Any housing-related distributions must comply with in-kind support and maintenance (ISM) rules

Improper handling of distributions can result in loss of Medicaid eligibility.

4. Trustee Training Expectations Have Increased

Although not a legal requirement, the SSA and courts are emphasizing trustee education to prevent mismanagement of trust funds.

New trends:

• Families naming a sibling or parent as trustee are encouraged to complete basic fiduciary training

• Some Texas probate courts are requesting proof of trustee competence when reviewing first-party trusts

• The Lange Firm offers trustee guidance, checklists, and mentorship for families managing a loved one’s trust

5. First-Party SNTs Must Be More Clearly Tied to Disability Documentation

The SSA now requires that new first-party special needs trusts (funded with the beneficiary’s own assets) include:

• Clear connection between trust creation and the individual’s disability

• Certified copies of medical diagnoses

• Explanation of why the trust was established instead of spending the funds

Failing to meet these criteria can result in delays or rejection of SSI or Medicaid eligibility.

What Stayed the Same in 2025

Despite the updates, the core rules of SNTs remain:

• Third-party SNTs (funded by parents or family) do not require Medicaid payback

• SNTs must still be irrevocable to qualify for benefit protection

• The trustee cannot give cash directly to the beneficiary

• Distributions must be made in-kind or for goods/services paid by the trust

Common Mistakes to Avoid with the New Rules

• Using the trust to pay for rent or groceries without triggering SSI reductions

• Letting untrained trustees manage investment or spending

• Failing to amend trust language for digital assets

• Skipping formal records of expenditures and disbursements

• Ignoring state-specific Medicaid interpretations

How The Lange Firm Helps Families Comply With New SNT Rules

At The Lange Firm, we:

• Draft compliant third-party and first-party SNTs

• Help families amend outdated trusts for 2025 rules

• Offer annual trust reviews for compliance and tax issues

• Educate trustees on their legal duties

• Coordinate with Medicaid caseworkers and financial advisors

• Assist with trust-funded real estate and care planning

We’re based in Sugar Land and serve families across Texas who want to ensure long-term protection for their loved ones with disabilities.

Do You Need to Update an Existing Special Needs Trust?

You might, especially if your trust was created:

• Before 2020 and hasn’t been reviewed

• Without any language about digital assets

• Without a backup trustee or succession plan

• Without considering pooled trust disclosures

• With vague distribution provisions that may now raise red flags

Schedule a trust checkup with The Lange Firm to ensure continued benefit eligibility and legal protection.

Insert backlink here to: “Can a Trustee Also Be a Beneficiary of a Trust?”

Final Thoughts: Navigating the New Rules for Special Needs Trusts in Texas

Staying current with evolving SNT rules is critical for protecting both your family’s assets and your loved one’s future government benefits. The new 2025 requirements make proper trust drafting and trustee support more important than ever.

📞 Contact The Lange Firm today to create or update a special needs trust that complies with Texas and federal law—and gives you peace of mind.