Can a Special Needs Trust Pay for Housing in Texas?
July 16, 2025
When planning for the financial future of individuals with disabilities, ensuring the proper use of a Special Needs Trust (SNT) is critical. For example, covering living expenses is often a significant concern for Texas families.
You may have specific questions, such as “Can a special needs trust pay for housing?” Understanding whether an SNT can cover the costs of a home without jeopardizing Supplemental Security Income (SSI) benefits is vital for successful special needs planning.
Learn more about housing rules, recent changes to the regulatory standards, and strategies for how to establish an SNT that provides the maximum benefits to a loved one. Our goal is to help you make informed decisions for the best quality of life and financial stability of a beneficiary.
First, Can a Special Needs Trust Pay for Housing?
Yes, a Special Needs Trust can cover housing costs, but it must be done carefully to avoid reducing SSI benefits.
The Social Security Administration (SSA) classifies certain housing-related payments as in-kind support and maintenance (ISM), which is treated as unearned income. This can potentially reduce SSI benefits by one-third of the Federal Benefit Rate (FBR) plus $20 per month.
What Housing Costs Can an SNT Cover?
A Special Needs Trust can pay for housing expenses, such as:
- Rent or mortgage payments
- Property taxes
- Utilities (electricity, gas, water)
- Homeowners insurance
What Are The Implications for SSI?
If the Special Needs Trust makes direct payments to cover these expenses, it may trigger a reduction in the beneficiary’s SSI benefits.
For instance, the current Federal Benefit Rate is $1,013. If an SNT pays for housing directly, SSI benefits may decrease by up to $334.33 (1/3 of $1,013) + $20 per month.
The key takeaway here is that while SNTs can pay for housing, families should collaborate with experts, such as our Wealth Management specialists at Texas Gulf Bank, to determine the best strategy to minimize any negative impact on SSI benefits.
Recent Changes to SNT and Housing Rules
Another factor to consider is recent updates to regulations. As of September 30, 2024, the SSA removed food from in-kind support and maintenance (ISM). This means trusts (including SNTs) can now pay for groceries, meal deliveries, restaurant meals, etc., without reducing SSI.
However, shelter costs – such as rent, mortgage, utilities, and property taxes – are still counted as ISM and can reduce SSI.
What Makes Housing Such a Complex Issue for SNTs?
Housing expenses raise unique challenges within the context of an SNT. Beyond the ISM issue, families should also consider:
- *Tax Implications: An SNT-owned home may lose property tax exemptions or be ineligible for capital gains exclusions.
- Medicaid Estate Recovery Program (MERP): For first-party SNTs, Medicaid may seek reimbursement from the trust after the beneficiary’s death, possibly including the value of real estate.
- Clear Trust Language: Ensure the trust explicitly allows for housing payments, modifications, and other necessary provisions.
These financial and legal intricacies underscore the importance of collaborating with attorneys, Wealth Management professionals, and trustees of a Special Needs Trust to ensure alignment.
*Consult your tax advisor for any tax implications of SNTs and the assets and expenses in connection therewith.
Strategies to Manage SNT Housing Costs
Navigating the complexities of housing expenses within a Special Needs Trust requires careful planning and coordination. Here are key strategies that families in Texas need to consider:
1. Integrate ABLE Accounts
ABLE accounts (Achieving a Better Life Experience) allow individuals with disabilities to save and spend on qualified disability expenses, including housing, without reducing SSI benefits.
- How it Works: Use the SNT to fund the ABLE account, and then pay housing costs directly from the ABLE account.
- Important Note: Housing payments from an ABLE account must be spent in the same month to avoid being counted as ISM.
- Future Expansion: Starting in 2026, ABLE account eligibility will expand to individuals with disabilities diagnosed before age 46.
2. Consider Ownership vs. Occupancy
If the SNT purchases a home for the beneficiary, the trust must hold the title to avoid disqualification as a third-party SNT or triggering Medicaid transfer penalties (in the case of first-party SNTs).
- SSI Impact of Free Occupancy: If the SNT allows the beneficiary to live rent-free, this is considered ISM and will reduce SSI. Charging rent to the beneficiary and carefully managing taxes can help alleviate this issue.
3. Cover Accessibility Modifications
One benefit of SNTs is that they can cover medically necessary home modifications without reducing SSI benefits. This may include:
- Wheelchair ramps
- Widened doorways
- Accessible bathrooms
- Safety equipment
Proper documentation demonstrating that these modifications are for medical purposes is essential to avoid them being classified as ISM.
4. Run Benefit Impact Analysis
We recommend analyzing how different SNT housing arrangements will affect benefits like SSI and Medicaid. By working with experts, families can create tailored strategies that reduce the SSI impact.
For example, our Wealth Management team can run a side-by-side comparison to help you understand how trust distributions may affect your loved one’s public benefits:
- Compare SSI/Medicaid eligibility before and after the 2024 SSA rule changes.
- Show the real-world effect of housing or food payments on monthly SSI cash flow.
- Provide insight on how different funding strategies (SNT vs. ABLE) impact benefit preservation.
5. Modernize Trust Documents
Outdated trust language or inadequate provisions can expose the trustee to legal risks. It’s a good idea to periodically review the trust verbiage to ensure it aligns with SSA rules and Texas state laws.
To reduce legal risk and stay aligned with SSA rules, we recommend that trust documents include the following:
- Authority to purchase or own real estate.
- Permission to pay for rent, mortgage, utilities, insurance, and home maintenance.
- Provisions to charge rent or allow rent-free occupancy.
- Language enabling accessibility modifications or medically necessary upgrades.
- Updates to ISM and food/shelter references, per 2024 rules.
How Texas Gulf Bank Can Help Families
The Wealth Management team at Texas Gulf Bank specializes in helping families establish and manage Special Needs Trusts. From individual trust reviews to collaborative planning with attorneys and CPAs, our advisors work to ensure compliance with state and federal regulations while maximizing the trust’s benefits.
Consider our available support for your family:
- Personalized SNT Reviews: We’ll assess whether your trust is optimized under the latest SSA rules.
- Benefit Impact Analysis: We help families understand how housing-related distributions affect SSI and Medicaid.
- ABLE Account Guidance: We are capable of coordinating ABLE account strategies to pay for housing without impacting benefits.
- Document Modernization: We review trust documents to make sure they are up-to-date and fully compliant with current SSA definitions, such as ISM.
- Collaboration with Professionals: We will work with attorneys and tax professionals to integrate housing strategies into broader special needs planning strategies.
By providing families with clarity and actionable strategies, we may be able to ease the administrative burden of managing SNTs while helping protect the long-term quality of life for individuals with disabilities.
Let’s Discuss a Special Needs Trust
Special Needs Trusts are valuable tools for families seeking to provide financial stability and enhance the quality of life for individuals with disabilities. However, when it comes to managing housing expenses, they must be approached with care to avoid jeopardizing public benefits programs such as SSI and Medicaid.
By staying informed about SSA rules, integrating ABLE accounts, and collaborating with experienced professionals, local families can set up trust funds to pay for housing while still protecting eligible government benefits.
Take the first step toward smart planning. Contact the Wealth Management Team at Texas Gulf Bank today to schedule your complimentary consultation.
We would be glad to answer more questions in addition to “Can a special needs trust pay for housing?” Our knowledgeable team is ready to help you and a loved one strive for financial security.
- Non-Deposit Investment Products are:
- not insured by the FDIC;
- not a deposit or other obligation of, or guaranteed by, the bank;
- subject to investment risks, including possible loss of the principal amount invested.