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Special Needs Trusts

Special Needs Trusts (SNT’s) come in several varieties.  The primary purpose of all SNT’s is to hold assets for a beneficiary while exempting the contents of the SNT for programs like Medicaid, Supplemental Security Income (SSI), subsidized housing, food assistance and some other public benefits.  Many of these programs have limitations on the value of assets the individual can have and still receive benefits.  Using the “technical terms,” there are d4A, d4B and d4C Special Needs Trusts and there are 1st Party SNT’s and 3rd Party SNT’s…so we only left out the “2.”

  1. The first category of SNT’s consists of assets of the beneficiary (from lifetime earnings, an inheritance, gift or personal injury award).   These are “1st party SNT’s.” These are commonly called “self-settled” SNT’s.  These SNT’s have very specific requirements under federal law (actually it part of the Social Security Act) and great care should be used in implementing these SNT’s.
  2. The second category of SNT’s are Trusts established by a spouse, for the benefit of his or her spouse, within a will and therefore only upon death.  These are called Qualifying SNT’s. 
  3. The third category of SNT’s consists of assets of others (not the beneficiary or his or her spouse) set aside for a disabled person, either during life or upon death of the person setting up the Trust.  These are called “3rd party” SNT’s.  This is the type of SNT that a mother or father may set up for their son or daughter with a developmental disability to help supplement the public assistance programs mentioned above.  The SNT would help to pay for the types of services the parents were providing while they were alive but have then passed before their family member.  This type of SNT is generally, but not only, funded after the parents are both gone.  Life insurance is a very common financial tool to fund these SNT’s.  This SNT provides for a capable Trustee (manager) to oversee the SNT, from its investments to how the funds are used.

Special Needs Trusts can help individuals with a disability of any age.  SNT’s can help them qualify for programs to assist with medical and long term care expenses as well as possibly get a monthly income stream from Social Security, even when the individual may have never worked.

SNT’s are very powerful planning tools and are somewhat more complex to establish and administer than a typical will or revocable trust.  There are many ways to mess up these trusts including: 1) having an improperly drafted document (faulty language used by the drafter) or 2) the trustee administers the trust improperly (making distributions or disbursements not permitted under the terms of the document or paying for things that adversely affect the beneficiary’s eligibility for programs). 

Even well intentioned trustees can make mistakes in administration of a SNT and then there are the trustees that do not have good intentions.  Preserving the limited funds for an individual with a disability is critical.  Selection of a qualified trustee is imperative and you should hesitate before putting a family member in charge of one of these trusts without a good support network and professionals in place to advise them of their responsibilities.

If you have someone with medical bills that are out of control and has little or insufficient medical coverage you should think of a SNT.  If you know someone who faces long term care, either in an institutional setting or out in the community, you should think of a SNT.

SNT’s are tools.  They will work well for some individuals with a disability and possibly not for others.  An Elder Law Attorney or Special Needs Lawyer can consider all of the tools and determine whether a SNT should be part of the solution to protect resources and to supplement public assistance programs.  If you need help finding a qualified professional in your area we can help to connect you with attorneys who understand these unique estate planning tools.

Here is your cheat-sheet on the types of SNT’s.

FIRST PARTY

SNT with beneficiary’s funds

d4A – Under age 65, Medicaid payback, works for SSI and Medicaid, works for income and assets  d4B – Qualified Income Trust, only income deposited, only works for some Medicaid programs, not SSI d4C – Pooled Trust, works for all ages for Medicaid but under age 65 for SSI, works for income and assets

THIRD PARTY

SNT with the funds of others
Spouse can set up a trust under their will (must die), no Medicaid payback Anybody other than the beneficiary or spouse can set up a stand-alone SNT, establish one upon death in a will or in a trust or participate in an existing SNT.  No Medicaid payback, can go to others upon the death of the primary beneficiary

By Travis D. Finchum, Esq.

Board Certified Elder Law Attorney 
Special Needs Lawyers, PA
901 Chestnut Street, Suite C
Clearwater, FL 33756
tel: 727 443-7898 fax: 727 631-0970

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