Supplemental Needs Trusts (sometimes called “Special Needs Trusts”) are special Trusts, authorized by the government, which allow disabled persons to protect their assets while they are receiving government benefits. For a disabled person who may have myriad needs such as a handicapped-accessible home, special clothing, transportation, food, furniture, and countless other accommodations, using up one’s assets on basic healthcare, and then becoming completely dependent on the government, can have devastating consequences for the person’s lifestyle. A Supplemental Needs Trust can prevent this disaster, and protect the disabled person’s standard of living.
There are two kinds of Supplemental Needs Trusts (SNTs). A First Party SNT is established for the benefit of a disabled person under the age of 65, using money belonging to the disabled person. A Third Party SNT is also established for the benefit of a disabled person, who can be any age, but the money in the trust comes from someone other than the disabled person. For example, a parent might establish such a trust for a child who is no longer a minor. Or, an aunt or uncle might establish a Third Party SNT for their disabled niece or nephew. There are important differences between these trusts, discussed below.
First Party Supplemental Needs Trust
Disabled people under the age of 65 can gain special advantages through a First Party Supplemental Needs Trust. This type of trust can facilitate eligibility for Medicaid or other government benefits, or protect you from becoming ineligible.
For example, if you’re disabled and have received a sum of money through a personal injury lawsuit, an inheritance, or a gift, your receipt of these funds can and often does result in the loss of your government benefits. Without an asset protection strategy, Medicaid will require you to use up these assets to pay for your care.
Compounding this difficulty, you’ll lose any Supplemental Security Income (SSI) you may be receiving, until the entire amount is spent down to the SSI eligibility limit, currently $2,000 in assets. Transferring the money to someone else doesn’t solve the problem either – if you do, you can lose your SSI for up to three years.
If that happens, instead of your cash windfall providing a lifelong improvement in your financial situation and quality of life, you now have significant out-of-pocket medical expenses Medicaid used to cover, and you’ve lost income that you used to receive.
Here’s a trust strategy that provides a solution, if you have or are about to receive assets that will make you ineligible. If you are under 65 years of age and you meet additional criteria, a First Party Supplemental Needs Trust will probably be the best solution. With this type of Supplemental Needs trust, your own assets are used to fund the trust. By federal law, this structure will protect your assets without jeopardizing Medicaid or SSI benefits.
One condition you’ll have to accept is that these are “pay back” trusts. This means that, if anything is left in the trust after you pass on, Medicaid will be reimbursed for the cost of your care from the remaining balance.
A First Party Supplemental Needs Trust can be established by the disabled person, or by a parent, grandparent, guardian or a court.
Third Party Supplemental Needs Trust
If someone other than the disabled person (a third party) wants to help or benefit the disabled person, it would be prudent for the third party to establish a Third Party Supplemental Needs Trust, rather than to make a direct gift or bequest. If you are disabled, and a relative or other person wants to provide money for your benefit, whether as an inheritance or as a gift, then the funds should go into a trust of this kind, rather than to you directly. This will permit you to keep your government benefits.
With this supplemental benefits trust, your age doesn’t matter, and there’s no “pay back” provision. Any person who wants to assist you financially can create this type of trust while he or she is alive, or have the trust become operative after he or she dies according to the terms of a Will. If the creator of the trust is your spouse, he or she must set it up in a Will.
Additionally, just as with most of the other Special Needs Trust vehicles already mentioned, a Third Party Supplemental Needs Trust gives you excellent protection against future creditors, not just Medicaid. If you end up in a lawsuit, the money is more effectively sheltered than it would be outside a trust, giving you greater peace of mind about your financial security.
Contact a Supplemental Needs Trust and Special Needs Trust Attorney at Lamson & Cutner to learn more!