A Supplemental  Needs Trust (SNT) is a discretionary, spendthrift trust created for a person (beneficiary) who has a disability or is elderly and is designed as a way to supplement and enhance the lifestyle of the beneficiary and specifically not to supplant  the person’s public benefits. Public benefits  include Supplemental Security Income (SSI), Medicaid and Section 8 Housing. One of the many appealing aspects of an SNT is that the beneficiary does not have direct access to the trust assets, which are therefore not “countable” when establishing financial eligibility for public benefits. (SSDI is not in this equation at all.)

SNT assets can be used to purchase a home for the beneficiary or services that Medicaid does not cover (including special therapies, wheelchairs, handicap accessible vans and mechanical beds), recreational and cultural experiences and, really almost  anything that will be used to enrich the beneficiary’s life. For a more comprehensive list of these items go www.thomasrmullen.com and look for  the big  red box labeled ‘Free Trusts Guide’.

Several requirements must be met when establishing an SNT. First the trustee must be given absolute control over the distribution of the trust assets. The trustee, for example, cannot take any direction from the beneficiary. Second, the beneficiary cannot have  authority to revoke the trust. If the beneficiary had this authority, the trust assets would be deemed an available resource  and he would lose all his public benefits. Third, the trustee cannot give cash outright to the beneficiary, as this would cause an immediate partial reduction and perhaps even a total loss of public benefits.  However,  there is some  ‘wiggle room’ here if the beneficiary is only on Medicaid

There are three types of SNTs: (a) a first party Supplemental needs trust; (b) pooled supplemental needs trusts; and c) a third party supplemental needs trusts.

A first party SNT – also commonly referred to as a “self settled” or “(d)(4)(a)” Trust -is required in order to  protect benefits if an individual receives either Supplemental Security Income or Medicaid and is about to receive a personal injury or worker’s compensation award, inheritance or other monies that will bring his countable assets to more than $2,000.

First party SNTs are similarly  required when an individual with disabilities has already received an inheritance from a well-meaning person (typically a parent) who did not understand that such a gift will disqualify him from receiving government benefits. Unless such funds are sheltered in a SNT, the beneficiary is required to pay all future medical, hospital and prescription bills and many other expenses from the inheritance and is ineligible for MassHealth and any group home living until those personal funds have been “spent down” to $2,000 just like the accident victim will be disqualified from their public benefits.

Further, when establishing a first party SNT, there are key requirements that must be addressed  in the trust agreement; otherwise, the SNT may not protect the beneficiary’s continued eligibility for public benefits.  For reasons known only to Congress, the beneficiary must be under the age of 65 at the time the SNT is funded and must also have a disability as defined in the Social Security Act.  Moreover,  the federal law requires that the SNT must be for the benefit of the individual with disabilities and that it be established by a parent, grandparent, legal guardian, or the court. The trust agreement must provide a Medicaid “payback” provision requiring any state which paid a benefit to be reimbursed upon the death of the beneficiary. Additionally, the SNT must be irrevocable.

Sometimes  the disabled person receives a small  settlement or inheritance and a first party SNT may not be the best solution. The expense of the initial legal fee, bookkeeping charges and tax return fees may outweigh the benefit of such a trust. For a more in-depth discussion of how to handle smaller tort awards click here. If spending down the settlement proceeds in the month of receipt  is not an  option, it may be more practical to place the litigation proceeds or inheritance in a pooled special needs trust.

Pooled trusts are established and managed by  non-profit organizations. There are about fifty in the United States, and currently only two in Eastern Massachusetts. The assets in the trust are “pooled” together for investment purposes, but the non-profit agency manages a sub-account for the beneficiary.

Unlike a First Party Trust, by utilizing a pooled trust the client does not have to involve a parent, grandparent guardian or the court.  This is an attractive option for many beneficiaries who have no living parents, grandparents, or legal guardian.

Pooled trusts have no legal fee, but they do have a up-front entrance fee plus an annual fee. When the beneficiary passes away, and before any heirs receive left-over money, not only does Medicaid  receive every dollar they paid out, but the pooled trust agency receives an additional fee.  Remember the purpose of these trusts is not to fatten the wallets of the heirs of the disabled person. Rather, the trust is designed soley to enhance the lifestyle of the disabled person. Some states do not allow a person over age 65 to fund a pooled trust. Be sure to find out if your state allows it before you start the process.

Third party SNTs are an ideal estate planning vehicle for parents and other friends and relatives who want to leave an inheritance to an individual with disabilities. Parents frequently say their greatest worry is how their child with disabilities will fare once they have passed away. Not only will a third party SNT shelter an inheritance, it can also be funded while the parents are alive, thereby permitting the parents to cover ongoing expenses of their child which are not covered by government entitlements.

What is attractive about a third party SNT is that, unlike a first party SNT, when the beneficiary dies there are no Medicaid payback requirements. The persons who created the third party SNT (most likely the parents) decide and have complete control over the trust remainder beneficiaries. Additionally, a third party SNT can either be testamentary (either written right in the will or as a separate document), or inter vivos (created during lifetime). The age of the disabled person is not a factor.

Thoughtful consideration should also be given to the designation of a trustee of any SNT. The trustee should be sensitive to the  disability of the beneficiary, actively monitor any services provided, aggressively advocate for all entitlements, and prudently invest SNT funds.

While the government benefits are critical to the well-being of most individuals with disabilities, public assistance does not address a significant number of needs and preferences that contribute to a comfortable life. Establishing a special needs trust is an important step towards creating financial security for the client with special needs.

I am available to create these trust for your clients.  Please call me, Attorney Thomas R. Mullen of Quincy Mass. at (617) 770-1050.

Be Sociable, Share!