Part I in this series identified and explained the types of Special Needs Trusts, or SNTs. Whether a First Party SNT, Supplemental Needs Trust or Pooled Trust, a basic goal remains to protect the government program benefits for the disabled beneficiary. The trust assets cannot become an “available resource” for the beneficiary to best ensure that the beneficiary continues to qualify for benefits.
In crafting SNTs, care must be taken in selecting a distribution standard under the trust. The Trustee provides for the beneficiary, but cannot do so in allowing assets to be deemed “available resources” for the beneficiary. The clearest standard to protect both the beneficiary and Trustee is a pure supplemental trust standard. A supplemental trust standard precludes any trust assets from supplementing or replacing public assistance benefits in any manner on any issue or need. A distribution can be made only if it would not reduce any needs-based benefit. There can be no SNT distribution for food or shelter.
The pure supplemental trust standard is the most protective for the beneficiary’s government benefits programs and perhaps easiest to administer for the Trustee. Yet, it is also the most restrictive and could act to deny the beneficiary critically needed assets.
The alternative is to use a discretionary trust standard in a SNT. Under a discretionary trust standard, the Trustee is directed to consider known income or resources available to the beneficiary, including public benefits and services in kind, but may make any distribution determined to be in the beneficiary’s best interest. This standard discourages, but still permits, distributions which could cause a reduction or elimination of public benefits (including payments for food or shelter).
The discretionary trust standard provides flexibility under a balancing test. It may prove in the beneficiary’s best interest to forego certain benefits and use trust assets (e.g., costs of housing). With this discretion comes a need to carefully administer the trust. A Trustee well-versed in these matters may prove essential to carefully evaluate potential trade-offs in benefit programs with proper care for the beneficiary.
To carefully consider your family’s own Special Needs Planning, contact Michael Geiger at Geiger Law.