10 Aug Special/Supplemental Needs Trusts

What is a special or supplemental needs trust (SNT)?

These terms are used interchangeably. A special needs trust is an irrevocable trust for the sole benefit of disabled individual.  It is established with either that individual’s assets/resources, which would be first party special needs trust or with the assets/resources of another individual, which would be a third party special needs trust.

Both of these types of trusts will be EXEMPT from counting as an asset/resource for SSI or other means tested government benefit programs, such as Medicaid, if properly drafted.  An attorney should be retained to draft the SNT to ensure that the trusts will be considered an exempt resource.

A first party SNT can be established only by: 1) a parent, 2) a grandparent, 3) a guardian, or 4) a court for the benefit of a disabled individual under the age of 65.   However, there is pending legislation entitled the Special Needs Trust Fairness Act of 2015 https://www.congress.gov/bill/114th-congress/senate-bill/349, which if passed, would allow the disabled individual to create their own first party SNT.    Typically these trusts are funded with a personal injury or medical malpractice settlement or award.  With a first party SNT, there IS Medicaid payback.  This means that the State is repaid to the extent that Medicaid benefits were paid out on behalf of the disabled individual.  However, there is NO payback for SSI, SSA or Medicare.

A third party SNT is established by someone other than the disabled individual with assets/resources that do not belong to the disabled individual.  Typically, these trusts are funded by a gift or inheritance.  They can be established during the lifetime (inter vivos) of the creator (grantor/settlor) of the trust or at the time of death through a devise in a will or revocable living trust (testamentary).   Unlike a first party SNT, there is NO Medicaid payback required from a third party SNT at the death of the disabled individual.

Special Needs Trusts (SNTs) are invaluable tools in special needs planning.  They can be used to leave an inheritance to a disabled son or daughter, thereby creating a nest egg for that individual while enabling them to continue to be eligible to receive means tested government benefits.  Money in the trust could be used to pay for a disabled individual’s vacations, out of pocket medical expenses, purchase of a home, education, purchase of a vehicle, recreation and other things.

However, an attorney should be consulted prior to distributing money out of a SNT.  The administration of the SNT is where I see the most mistakes being made.  Depending on how you distribute the money, to whom it is distributed, and what it is distributed for, it could affect the disabled individual’s right to continue receiving government benefits or could reduce the amount received by the individual.

If you need further advice regarding a SNT, the preparation of a SNT, or the administration of a SNT, please contact us.

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