Administering a Supplemental Needs Trust
A Supplemental Needs Trust, sometimes also referred to as a Special Needs Trust or an SNT, is a trust created for the benefit of a beneficiary who has a special need and is receiving assistance from certain government programs, such as Medicaid and Supplemental Security Income (SSI), which are needs based benefits and is also the recipient of substantial assets such as a gift, inheritance, or lawsuit settlement.
It can be either 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 SNT can be testamentary (created pursuant to the provisions of a Last Will and Testament) or inter-vivos (created during the lifetime of the creator or Grantor).
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 eligibility for government benefits. Instead of having the individual with special needs receive the assets outright, they would be paid instead to an SNT of which the individual is the lifetime beneficiary, thereby providing the desired protection.
A Trustee, generally, is a person (or persons) and/or entity (like a corporate Trustee) tasked with the legal obligation to administer a trust solely in the best interest of the beneficiary (or beneficiaries) pursuant to the direction provided in the trust instrument. A Trustee of an SNT is tasked with administering the trust pursuant to the provisions found therein and applicable statutes. The first thing a Trustee should do is read the trust document to gain an understanding of the direction outlined for them.
Next, if one has not already been provided, they should obtain a tax identification number (EIN) for the SNT. The EIN will be required to open a trust account with any financial institution. Once a trust account is opened, the Trustee should collect the SNT assets and hold them in such account in the name of the SNT. Comingling of SNT assets with non-SNT assets is strictly prohibited. All assets must be in the name of the SNT rather than the beneficiary or the Trustee individually. It is a good idea to periodically review the trust’s investments and assets to ensure compliance with the trust instrument and any applicable law, the intent of the trust, and the short and long-term trust goals. Generally, the assets should be invested pursuant to the Prudent Investor Act (in New Jersey, you can find that statutory authority under N.J.S.A. 3B:20-11.1). The Trustee must keep a precise accounting of all financial activity, and the Trustee shall also file annual tax returns as required.
The Trustee should try to avoid directly paying cash to the beneficiary as doing so may constitute income to the beneficiary and may impact eligibility for government benefits. Instead, if there are expenses the beneficiary incurs that are not covered by government assistance, the Trustee may pay those expenses directly from the trust account on the trust beneficiary’s behalf. Examples of such expenses may include bills for professionals such as attorneys, accountants and private care managers, or medical expenses not covered by the government assistance. The Trustee should not pay for expenditures such as basic food, clothing and shelter as the government will consider such expenditures when determining eligibility for the benefits intended to provide for those basic needs.
A Trustee is entitled to commissions pursuant to applicable statutory authority (in New Jersey, you can find that statutory authority under N.J.S.A. 3B:18-23). Furthermore, the trust instrument might give further guidance concerning the issue of commissions. Timing is important, so the Trustee should try not to delay collecting such commissions more than one year from the date the Trustee would otherwise be entitled to collect under the terms of the SNT or applicable statute as this delay may negatively impact the commissions payable to them.
A Trustee of an SNT created using the funds of a beneficiary with special needs as authorized pursuant to 42 U.S.C. §1396p(d)(4)(A), also known as a first-party Supplemental Needs Trust (as opposed to a third-party SNT, which is funded with assets not owned by the Beneficiary), has even more stringent guidelines when it comes to the trust’s administration. For example, a Trustee must notify the Division of Medical Assistance and Health Services, Bureau of Administrative Control 45 days prior to any expenditures in excess of $5,000.00 and must file annual accountings with the eligibility-determination agency and the DMAHS Beneficiary Administrative Action Unit. In New Jersey, for more regulations of such Special Needs Trust see N.J.A.C. 10:71-4.11(g)1.
As with the successful administration of any trust, administration is key. For a trust to serve the intended purpose, the Trustee must understand the trust’s intent, follow the guidelines provided in the trust document and, where applicable, in law, and make sure all of the administrative i’s are dotted and t’s are crossed. We at Pashman Stein Walder Hayden, P.C. have assisted many families in such matters. If you need assistance with an SNT or planning or administering generally for a dependent with special needs, please contact us.