Special Needs Trust

Introduction

“Special Needs Trust” (SNT) is a generic term commonly used to describe trust funds created to supplement the government benefits received by the beneficiary. By maintaining a beneficiary’s eligibility for government benefits, the pool of assets available for the care of the beneficiary becomes significantly broader and deeper and lasts for a longer period of time. Generally, if a client is asking whether an existing trust qualifies as a special needs trust, they are really asking if the trust will work to protect the beneficiary’s eligibility for need-based public benefits. The answer is often dependent on state law.

Someone may be prompted to establish an SNT for a number of reasons. These are the most common situations:

  • To hold assets belonging to a beneficiary with a disability who needs meanstested benefits, most often Medicaid;
  • To hold assets, such as an inheritance or personal injury settlement, coming into the hands of an individual with a disability already receiving means-tested benefits;
  • Your browser may not support display of this image. As an estate planning tool to hold the disabled beneficiary’s share of the parents’ or others’ estates;
  • To receive and hold child support, alimony or a property settlement in a divorce where a child or one spouse is disabled; and
  • To receive assets from an aged or disabled individual who is trying himself to become eligible for Medicaid.

The goal of the SNT is almost always to ensure that that the beneficiary will not experience a lapse in eligibility for benefits or a reduction of benefits already being received, and to avoid the imposition of a penalty period for an improper transfer upon seeking initialeligibility for benefits. Another important purpose of the SNT, especially in the estate planning situation, is to ensure a pool of funds to pay for advocacy and care management to the beneficiary over time.

Special needs trusts can be living tusts or testamentary trust funds, and may be either self-settled or created by a third party. In general, a SNT should be irrevocable, unless it is a third-party trust and the grantor is still living. A trust that is revocable by the grantor/beneficiary will be viewed as an available resource. Either type of trust may be drafted as a “trigger” trust — the trust may not start out as a SNT, but the happening of a particular event, such as the beneficiary’s need for Medicaid, may cause the trust to turn into a SNT. Whether or not a trigger trust is effective depends on your state law. The type of trust used depends upon whose money will fund the trust and the age and circumstances of the individual with a disability.