• What is a supplemental needs trust?
    • Supplemental needs trusts (also known as “special needs trusts”) are structured so that the trust assets will not be considered to be owned by the beneficiary of the trust in determining his or her eligibility for public benefits, such as Medicaid, Supplemental Social Security (SSI) or public housing. These trusts are designed not to provide basic support, but rather to pay for comforts and extras that could not be paid for with public assistance funds, such as education, recreation, counseling and medical care beyond what is required simply to maintain an individual.
  • Who can create a supplemental needs trust?
    • Supplemental needs trusts are very often created by a parent or other family member for a disabled son or daughter (even though the son or daughter may be an adult when the trust is created or funded). However, the disabled individual can often create the trust himself or herself, depending on the program under which he or she seeks benefits. Medicaid is the most restrictive program in this regard, making it difficult for an individual to create a trust for his or her own benefit and still qualify for benefits. However, even Medicaid has a “safe harbor” allowing for the creation of a supplemental needs trust with the beneficiary’s own money if the trust meets certain requirements. This is sometimes called a “(d)(4)(A)” trust, referring to the section of the authorizing statute.
  • Must a supplemental needs trust be irrevocable?
    • Yes, if the trust is created and funded by the person seeking public benefits. However, it is not necessary that a supplemental needs trust be irrevocable if the trust is created and funded by someone other than the individual receiving or seeking public benefits.
  • Who can serve as trustee?
    • Choosing a trustee can be a difficult decision. The basic question to consider is whether to choose a professional trustee (such as a bank or an attorney) or a family member or close friend. If you are considering a family member or friend to serve as trustee, it is important to evaluate whether the individual has the experience and qualifications to serve in this role. The beneficiary of the trust may not serve as trustee and this could disqualify the beneficiary for public benefits.
    • When choosing a trustee, factors to consider include the cost, relevant knowledge and experience, attentiveness to the requirements of the role and flexibility and a minimum of bureaucracy when decisions must be made. The trustee’s knowledge of public benefits programs and their regulations, as well as the beneficiary’s individual needs and circumstances, should also be considered. Often it makes sense to spilt roles, with a bank or trust company handling trust investments and accounting, a family member or social worker taking care of planning for the beneficiary’s care and an elder law attorney advising on public benefits issues. This can be done by appointing multiple co-trustees, or a single trustee who is advised by individuals with the necessary knowledge and experience.
  • Are there restrictions on how the funds in a supplemental needs trust are spent?
    • Each public benefits program has its own restrictions that must be complied with in order not to jeopardize the beneficiary’s continued eligibility for public benefits.
    • For instance, a beneficiary would lose a dollar of SSI benefits for every dollar paid to him or her directly by the trustee. In additions, payments by the trustee for the beneficiary’s food or housing are considered “in kind” income for SSI purposes and benefits will be reduced by one dollar for each dollar of the value of such “in kind” income. Some attorneys draft the supplemental needs trust agreement to limit the trustee’s ability to make such payments; other lawyers do not limit the trustee’s discretion by the terms of the trust agreement but instead counsel the trustee on an on going basis as to how trust funds may be spent, thus providing more flexibility for a trustee to use trust funds in case of the occurrence of unforeseen events or changes in circumstances. The difference in approach is a reflection of philosophy, the situation of the client and the size of the trust.

The information provided here is a summary only and does not take into account your individual situation. Please contact me at North Shore Elder Law & Estate Planning to learn more about supplemental needs trusts or other public benefit planning strategies.