Report: Special Needs Trusts and Supplemental Needs Trusts 

Generally, when a person leaves inheritance to, or creates a trust for, a loved one with a disability or special need, those funds disqualify that loved one from valuable and sometimes irreplaceable benefits. So how do you protect a loved one and his or her benefits? The key is a special needs or supplemental need trust. The purpose of a "special need" or "supplemental needs trust" is to allow a disabled beneficiary to receive funds and still be qualified to receive government health and disability benefits such as Medicaid and Social Security Disability. Special needs trusts and supplemental needs trusts are often used interchangeably. However, there is a difference between the two. A special needs trust limits distributions to items other than food and shelter while a supplemental needs trust does not limit any category of distribution as long as it does not disqualify the beneficiary of government benefits.

In order for assets in these SNT's (both special and supplemental needs trusts) to be protected for the beneficiary, without being an available resource that the government will look at to determine eligibility of disability programs, the beneficiary must have no power to revoke or direct assets of the trust. The trust assets provide for the beneficiaries supplemental needs. This type of trust can be used to increase the beneficiarie's quality of life. These trusts pay for things like education, recreation, counseling, and medical attention. Some common purchases made from a SNT can include vehicles, a home, and or a computer. For example an aide can also be paid for from the trusts assets so the disabled beneficiary can accompany the rest of the family on a vacation.

Trustee Responsibilities and Who Should be Trustee:

A SNT is typically prohibited from providing the disabled beneficiary with food or shelter because public benefits such as SSI will do this. Every state is different but since Pennsylvania is an "SSI first" state a portion of assets may go to the beneficiary without disqualifying them from government programs like Medicaid. A SNT allows a disabled person to lead as normal, comfortable, and rewarding life as possible. The trustee must have sole discretion to decide what the beneficiaries' needs and or wants are in the framework provided in the trust document. The trustee typically also has authority to liquidate the trust or receive payments from the trust. It is very important that the SNT be properly administered so the beneficiary does not lose his or her public benefits. Be careful who you pick as the trustee for your SNT because they have sole discretion over many important aspects of the assets in the trust.

Creating a Special Needs Trust:

Often, SNT's are created by a parent or other family while they are alive (an inter vivos trust) for a child with special needs (even though the child may be an adult by the time the trust is created or funded). These trusts may also be written in a will as a way for someone to leave assets to a disabled relative. Often times these are called third- party SNT's and upon the death of the disabled beneficiary assets could pass to the third party's other children. A third-party SNT can be revocable or irrevocable. Inter vivos or testamentary transfers into a SNT have different rules and penalties so make sure you understand what you are transferring and how it will affect the SNT.

Also the disabled individual can create the trust himself, depending on the program for which he or she seeks benefits. These "self-settled" trusts are frequently established by individuals who become disabled as the result of an accident or medical malpractice and later receive the proceeds of a personal injury award or settlement. Be aware you may need a "pay-back" provision in order to keep the assets from being counted by the government for governmental disability programs. Also under a "self-settled" SNT after the death of the disabled beneficiary the state must be reimbursed for the costs of medical assistance it provided.

A special or supplemental needs trust is a valuable tool to provide continuing care for a disabled love one and to help that person to live the best life possible. And, since you want your loved one to get the care and benefits he or she needs or wants without being penalized by the government the SNT is a useful tool. Make sure you structure your SNT so it does not leave your assets to be counted as your disabled friends or family members assets for government purposes.

Also the trustee has a very important role and a large amount of discretion in the SNT. Spend some time making sure the trustee and back up trustee are the right person, people, or entity for you and your family or loved one. There are many different forms of special needs trusts from third-party SNT's, to "self- settled" SNT's. Each type of SNT has specific rules and regulations and you want to be aware of those so you make the best decisions for your special needs trust without penalizing yourself or your disabled loved one. Special or supplemental needs trusts are a way you can care for a disabled loved one from now until the end of their life. Knowing that a disabled loved one will have the things he or she needs or wants for the rest of their life is priceless.

Consider a SNT today to provide for your disabled loved ones tomorrow.
David M. Frees, III
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Attorney, Speaker and Author