Monthly Update for Administration of Trusts and Asset Management

SPECIAL NEEDS AND SUPPLEMENTAL NEEDS TRUSTS

A Special Needs Trust or Supplemental Needs Trust (SNT) is a trust established for the benefit of a physically or mentally disabled person, or a person who has other special needs, such as a chronic illness, while still allowing the individual to qualify for and receive public assistance disability benefits provided by Social Security, Medicare or Medicaid.  The objective of a SNT is to provide resources to supplement, and not replace, any such governmental benefits.

BACKGROUND

Some government programs aimed at assisting disabled individuals, such as Medicaid and Supplemental Social Security Income (SSI), are needs based.  That means if a disabled individual has access to more than a specified level of resources (state level limits vary, but are generally $2000 per applicant), he or she will not be eligible to receive such benefits.  In 1993, Congress officially approved the use of SNT’s to maximize the use of all available resources, both private and governmental, to provide more fully for the needs of a disabled individual.

With a SNT, a disabled individual is able to first tap into any governmental benefits to which he or she is entitled, and then can spend personal resources such as a SNT as a secondary source for additional support and comfort.

TYPES OF SNT’S

There are three types of SNT’s:  Self-Settled or First-Party, Third-Party, and Pooled.

A Self-Settled or First-Party SNT is created for the sole benefit of a disabled individual who is under age 65.  The trust must be

established by the disabled person’s parent, grandparent, guardian or by the court but cannot be created by the disabled person.  However, the disabled person can fund the trust.  For example, the disabled person can fund the trust with assets that have been inherited or received as a result of a settlement from a lawsuit.

Transferring assets to a Self-Settled/First-Party SNT does not trigger the Medicaid or SSI look-back provisions, which are generally 36-60 months.  Another benefit is the assets of the trust will not be countable as resources for governmental assistance eligibility purposes.  A disadvantage is that upon the beneficiary’s death, the government agency which provided benefits has the opportunity to file a claim against the trust for reimbursement of the funds it expended on behalf of the beneficiary.

A Third-Party SNT is a trust created and funded by a disabled individual’s parent or other third party.  There is no payback requirement and there is not a requirement the disabled person be under age 65.

A Pooled SNT is a trust that is managed by a non-profit organization.  Funds are pooled for investment purposes but separate sub-accounts are maintained for each disabled beneficiary.  A Pooled SNT has the same rules as a Self-Settled/First-Party SNT with the exception of a disabled person can create the trust for himself or herself.  Also, if there are any funds left in the account after the beneficiary’s death and after Medicaid/SSI has made its claim, the funds can remain in the pooled SNT to help others in the pool. 

CONCLUSION

Family members and caretakers of individuals with special needs can benefit from setting up a Special Needs Trust or a Supplemental Needs Trust to help supplement public assistance.  If a disabled individual’s basic needs and comfort are not able to be met with Social Security or Medicare/Medicaid benefits alone, an SNT can help close the gap.  Setting up a SNT is a complex process that requires careful drafting and administration to avoid disqualification for governmental benefits.  Be sure to consult a specialist to determine which type of SNT is appropriate and to be sure it is drafted properly. 

Utilizing a corporate trustee for a SNT can help ensure it is administered properly and according state law.

WealthTrust Oklahoma is the Oklahoma Trust representative office of National Advisors Trust Company. We are independent and hold a federal charter.  In addition to trust administration services, we offer investment management services through our firm, WTO Advisors.

Alyssa Kaiser, CTFA, has over 31 years of experience in the trust, investment, and banking industries and is President of WealthTrust Oklahoma and WTO Advisors.  Alyssa may be contacted at: (405) 241-1600, or by email at Alyssa@WealthTrustOk.com.