What is a Supplemental Needs Trust?
In our November 17, 2020 Trusts and Estates & Elder Law Update, we discussed when a guardianship might be appropriate. In this Update, we will discuss the basics of a Supplemental Needs Trust ("SNT"), a planning technique frequently used for dependents with special needs.
A SNT is a trust created for the benefit of a beneficiary who has a special need. It can be both revocable or irrevocable (though the latter is more common) and is designed to supplement, and not to supplant, impair or diminish, government benefits the beneficiary is receiving or is eligible to receive. The goal of the SNT is to protect any assets that may be given to the beneficiary, such as a gift, inheritance, or lawsuit settlement, so that these funds are not counted as an “available resource” to the beneficiary when determining his or her eligibility for government benefits. Instead of having the individual with special needs receive the assets outright, they would be paid instead to a SNT of which the individual is the lifetime beneficiary, thereby providing the desired protection.
The following are different types of SNTs:
1. The Self-settled (or First Party) SNT, which is established using the beneficiary’s own funds; and
2. The Third Party SNT, which is established using the funds of a third party, such as a parent of the beneficiary.
Third Party SNTs can be established during the lifetime of the person establishing the SNT (the Grantor), which is also referred to as an inter vivos trust, or it can be established under a person’s Last Will and Testament and funded by assets in that person’s estate upon his or her death, also referred to as a testamentary trust.
The Self-settled SNT, also referred to as a Special Needs Trust, can only be established using the assets of a beneficiary who is disabled and can only be funded prior to the time the beneficiary reaches the age of sixty-five (65). The Self-settled SNT must be irrevocable, for the sole benefit of the beneficiary and include a payback provision which states that upon the death of the beneficiary, the State Medicaid program must be reimbursed from any remaining assets of the trust up to the total amount of Medicaid benefits paid on behalf of the beneficiary. The Self-settled SNT can be established for the benefit of a disabled beneficiary by such individual, as well as his or her parent, grandparent, legal guardian, or a Court. The funding of the Self-settled SNT should not affect Medicaid eligibility so long as it is in compliance with all Federal and State laws and regulations.
The Third Party SNT differs from the Self-settled SNT in that is established using the funds of a third party rather than the beneficiary with special needs and, because of this, does not require a payback provision to the State Medicaid program. The person establishing this trust can also direct how any remaining assets would be distributed upon the beneficiary’s passing. Such trusts are usually created by any individual wishing to provide for but simultaneously protect the individual with special needs, such as his or her parents or grandparents.
Many individuals overlook proper planning for a dependent with special needs when doing their own estate planning. If you have a dependent with special needs that is either receiving government benefits or is eligible to receive government benefits and you have decided to leave money to that individual upon your death, have you left it to such child or grandchild outright or under a simple trust? If you answered yes, or worse, if you have not prepared any estate planning documents, that person you were trying to help may risk losing his or her government benefits or becoming ineligible to receive those benefits.
We at Pashman Stein Walder Hayden, P.C. have assisted many families in such matters. If you need assistance with an SNT, or planning generally for a dependent with special needs, please contact us.