In recent posts to Elder Law News, I have written about some of the trusts we use in Elder Law practice. So far, I have discussed the Medicaid Trust, the Pooled Income Trust, and the Revocable Trust. In this article, I discuss the Supplemental Needs Trust, which is sometimes referred to as a “Special Needs Trust.”
The basic idea of the Supplemental Needs Trust is that it is a means of setting aside a sum of money to supplement the care and comfort of a disabled person, without jeopardizing that person’s ability to receive government benefits, such as Supplemental Security Income (SSI) or Medicaid.
Like other kinds of trusts, the Supplemental Needs Trust is a legally created entity that is managed by a Trustee. The Trustee has the discretion to use the funds held by the trust to enhance the lifestyle of the beneficiary, by paying for education, entertainment, companions, care, and other supports. The funds in the trust cannot be used to replace, or pay for, services that would otherwise be covered by a government program.
There are two types of Supplemental Needs Trusts: the first party trust, where money that belongs to the beneficiary is used to fund the trust; and the third party trust, where money that belongs to persons other than the beneficiary is used to fund the trust.
The First Party Supplemental Needs Trust
You might wonder where a disabled person who is eligible for SSI or Medicaid obtains the kind of money that would be used to fund a Supplemental Needs Trust. There are a couple of typical, frequently recurring, cases. The person is disabled because he or she suffered an injury (e.g., automobile accident or medical malpractice) that led to a lawsuit, which resulted in a settlement or judgment that provided a substantial recovery to that person. Another common scenario is one where the disabled person receives a gift or inheritance from a third party.
In either of these scenarios, and others, in order to avoid the loss of benefits, the disabled person should put the money he or she has received into a First Party Supplemental Needs Trust. There are certain important rules governing this type of trust: the disabled person must be under the age of 65, and the trust must name as the first remainder beneficiary the government program that provided benefits, to reimburse it for its costs.
Since the enactment of Federal legislation in 1993, a First Party Supplemental Needs Trust could not be created by the beneficiary himself or herself. The trust could only be created by a parent, grandparent, guardian, or court. However, as discussed in a recent post by my colleague, Heather O’Neill, the recently-enacted 21st Century Cures Act finally allows a beneficiary to create his or her own trust, and it is expected that New York State will soon align its laws with this new Federal legislation. (Click here to read Heather’s article.) This important change will avoid the delay, frustration, and expense of going to court in many cases.
The Third Party Supplemental Needs Trust
A Third-Party Supplemental Needs Trust can be created for the benefit of a disabled person by anyone who does not owe that person a duty of support. So, parents of adult children, grandparents, aunts, uncles, and friends – all can create a Third Party Supplemental Needs Trust with their own funds. The trust can be created and funded during the lifetime of the grantor, or it can created under their Will. Spouses can only create this type of trust in their Wills. The trust can be created for someone of any age, and there is no “pay back” to government programs that provided benefits to the disabled person.
If there is a family member or friend who is disabled, the Supplemental Needs Trust is an extremely important legal tool that should be considered. If you need advice about these trusts, please feel free to contact one our Elder Law attorneys at Lamson & Cutner, P.C.