Supplemental needs trusts (SNT), also known as special needs trusts, are a legal arrangement that allows a disabled person to have assets held by a trustee, while still being eligible for government benefits like Medicaid and Supplemental Security Income (SSI). Many disabled individuals depend upon government benefits, such as Medicaid and Supplemental Security Income (SSI) benefits to meet their basic living requirements. Unfortunately, Medicaid and SSI each have a $2,000 countable asset limit for individuals, severely restricting your ability to gift assets to disabled loved ones to enhance their quality of life. These asset limits are also a significant concern when a disabled individual receives an inheritance or a personal injury award. In either case, a Supplemental Needs Trust (SNT) also sometimes called a Special Needs Trust can allow a disabled individual to have funds held for their benefit without disqualifying them from government benefits. These funds are held by a trustee and used for supplemental expenses that are not covered by government programs.
Some examples of such supplemental expenses are as follows: Medical expenses not covered by other benefits, Travel, Furniture, Recreation, Insurance, Education, Home appliances, Legal Expenses, and Prepaid funeral expenses
Types of SNTs
There are two primary classes of SNTs: Self-Settled Special Needs Trusts and Third-Party Supplemental Needs Trusts.
Third-Party Supplemental Needs Trusts
Third-Party SNTs are created by an individual (not the disabled beneficiary) such as a parent or close family friend who wants to provide for a disabled individual without disqualifying them from government benefits. Third-Party SNTs can either be testamentary (created in someone’s Last Will and Testament), or by standalone trust document created during the grantor’s lifetime. Testamentary Supplemental Needs Trusts are useful if the grantor does not want to fund the trust during their lifetime but wants to make sure their loved one is cared for after they are gone. A standalone third- party SNT is useful when the grantor would like to provide for their disabled loved one immediately, or if more than one person will be donating funds to the same individual. Either way, the trust must name a trustee to hold and use the assets for the disabled individual’s benefit.
Self-Settled Special Needs Trusts
If you receive an inheritance or a large personal injury award, while on government benefits such as SSI and Medicaid, a self-settled special needs trust is essential to preserve your eligibility for those government benefits. A self-settled SNT allows you to name a trustee who can use the funds for your benefit to supplement what you are receiving from government benefits. Prior to 2016, such trusts could only be established by a parent, grandparent, guardian, or the court. However, the 21st Century Cures Act now allows individuals to create their own self-settled SNT without involvement by a parent or the necessity of a court order. In order to create a self-settled SNT, the individual must be disabled (under the definition used by the Social Security Administration) and be under the age of 65.
Self-Settled SNTs can either be a D4a trust (with an individual or corporate trustee) or a D4c pooled trust (managed by a non-profit association). Which option is best for you will depend upon a number of factors and should be discussed with an attorney before making a decision.
Self-Settled SNTs must include a provision that upon the death of the disabled beneficiary of the trust, the remaining trust assets must be used repay the state for Medicaid benefits paid to the beneficiary before any funds can go to other beneficiaries. This payback requirement is a major difference between Third Party and Self-Settled SNTs.
If you have a disabled loved one for whom you would like to provide, or if you are disabled and are receiving an inheritance or personal injury award, consult with an experienced attorney today to discuss your options. SNTs are complex and require compliance with both state and federal statutes to ensure they achieve their intended goals.
