Special Needs Trusts The Very Basics: Part I: What Is a Special Needs Trust?

A Special Needs Trust, or SNT, is a type of trust established for the benefit of a person with a physical or intellectual disability.  A trust itself is simply a contract between the Grantor (who makes the trust) and the Trustee (the one designated to administer the trust).  Once funded, SNT assets will be dedicated in a specific manner to provide for the disabled beneficiary.

One fundamental goal of a SNT is to protect and preserve public benefits which the beneficiary receives or may receive in the future.  SNTs accomplish this objective by best ensuring that trust assets should not be considered “available resources” in determining a disabled person’s eligibility for needs based benefits.  

SNTs will be either First Party, Third Party, or Pooled trusts.  First Party SNTs hold assets of the disabled beneficiary which are transferred to the trust.  The beneficiary, parent, grandparent, legal guardian or court can establish a First Party SNT.  The beneficiary must be below age 65 and disabled when the trust is created.  First Party SNTs are irrevocable and the terms cannot be changed.  First Party SNTs sometimes are referred to as “Self-Settled”, “Medicaid Payback”, or “(d)(4)(A)” trusts.  Importantly, First Party SNTs must include a medical payback provision requiring that proper medical liens and costs are paid back from the estate of the beneficiary following the death of the beneficiary.

Third Party SNTs, most commonly referred to as Supplemental Needs Trusts, are established by someone other than the disabled beneficiary utilizing assets belonging to third parties (not assets owned or controlled by the beneficiary).  Supplemental Needs Trusts may be revocable or irrevocable.  Typically, Supplemental Needs Trusts are revocable until the death of the Grantor(s), then becoming irrevocable.

The assets in a Supplemental Needs Trust do exactly as the name suggests: they supplement or are beyond the government benefit programs.  If established properly, Supplemental Needs Trusts have no payback obligations.  Assets remaining in the trust after the beneficiary passes can be distributed according to the terms of the Supplemental Needs Trust.  Because there is no medical payback, Social Security carefully scrutinizes Supplemental Needs Trusts to determine whether the beneficiary in any manner funded or controlled the assets in a Supplemental Needs Trust.

Pooled trusts and other aspects of SNTs will be addressed in additional articles relating to Special Needs Planning.  For assistance with these Special Needs Planning issues, contact Michael Geiger at Geiger Law.

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