Does a Supplemental Needs Trust Impact Government Benefits?
For disabled persons receiving financially based government benefits, supplemental needs trusts (SNTs) can safeguard benefits and serve as an effective estate planning tool.
How SNTs Work
Supplemental Needs Trusts allow disabled individuals to retain inheritances or gifts without eliminating or reducing government benefits, like Medicaid or Supplemental Security Income (SSI). There are cases where the individual is vulnerable to exploitation or unable to manage their own finances and using an SNT allows them to receive additional funds to pay for things not covered by their benefits.
Having an experienced estate planning attorney properly create the SNT is critical to preserving the individual’s benefits.
Important Restrictions for SSI Recipients
Disabled individuals who receive SSI must be careful, since the rules about assets from SSI are far more restrictive than if the person only received Medicaid or Social Security Disability and Medicaid.
What SNTs Can Pay For
The trustee of an SNT makes distributions to third parties for items such as:
- Personal care items
- Transportation (including buying a car)
- Entertainment
- Technology purchases
- Payment of rent
- Medical or therapeutic equipment
- Home ownership
Critical rule: The SNT may not make cash distributions to the beneficiary. Payment for any items or services must be made directly to the service provider, retailers, or other entity for the benefit of the individual. Not following this rule could lead to the SNT becoming invalid.
Types of SNTs
Self-Settled SNTs
SNTs may be funded using the disabled person’s own funds. If the SNT is funded using the person’s own funds, it is called a “Self-Settled SNT.” This is a useful tool if the disabled person inherits money, receives a court settlement, or owned assets before becoming disabled.
Key requirement: A Self-Settled SNT must contain a “Payback Provision” directing the trust to repay the state’s Medicaid agency for any assistance provided.
Third-Party SNTs
If someone other than the disabled person funds the SNT, it’s known as a “Third-Party SNT.” These are most commonly created as part of an estate plan to protect a family member and ensure they have supplementary funds as needed and to preserve assets for other family members when the disabled individual dies.
Key benefit: The Third-Party SNT is not required to contain a payback provision. Any assets remaining in the trust at the time of the disabled person’s death may be passed on to residual beneficiaries.
Standby SNTs
Many estate planning attorneys use a “standby” SNT as part of their planning, so their loved ones may be protected in case an unexpected event occurs and a family member becomes disabled.
If you have questions about supplemental needs trusts or special needs planning, contact The Stegall Law Firm to schedule a consultation. We are here to help.
