Special Needs or Supplemental Needs Trusts

1. Special Needs or Supplemental Needs Trusts Jerry L. Basford November 8, 2010

2. What is a trust? A trust is a legal document containing instructions directing the management and distribution of the resources placed in the Trust. Grantor-person creating or funding the trust Beneficiary-person receiving the benefit or on whose behalf the trust was created.

3. 1993 Omnibus Budget and Reconciliation Act Title 42 of the United States Code Section 1396(d)(4). If the trust meets the U.S. Code requirements, the trust is not a countable resource for SSI or Medicaid qualification purposes. Neither will a transfer of assets to a d(4)(A) trust give rise to a period of ineligibility for either SSI or Medicaid.

4. What is a Special Needs Trust? a special needs trust (SNT) is a legal document that is created for a person who, because of physical or mental disability, or chronic or acquired illness, at under age 65, is receiving federal and state government benefits for medical care and daily living needs.

5. What is the Purpose of a Special Needs Trust • Provides a source of funds without disqualifying the beneficiary from receiving government benefits. • Inheritance or gifts could reduce or eliminate the beneficiary’s eligibility for such benefits because he or she may only have a maximum of $2,000 in his or her own name to qualify for them.

6. When should a Special Needs Trust be established? Generally no later than the beneficiary’s 65th birthday.

7. Who can establish a Special Needs Trust? Three main types of SNT’s Family-Type Trust Pooled Trust Court Ordered Trust

8. Family-Type Trust (Third Party Trust) Any third party can establish a trust, but usually the parents provide the money to set up the trust. The only person that cannot place money into this type of trust is the disabled person. Disadvantage: the money cannot be used for housing, food, or clothing. Pay-back provision may apply for Medicaid services provided during the life of the beneficiary.

9. Pooled Trust Anyone, including the individual with the disability can put money into a pooled trust, however, it must be established by a non-profit association. The trust pools the funds of many beneficiaries, manages and invests them. Each individual has his/her own account. Advantages: They are willing to handle much smaller accounts than a bank or trust company Disadvantages: the money cannot be used for housing, food, or clothing. Non-profit has control of the disbursements. Any money left in the trust after the beneficiary dies stays in the trust to help others with disabilities.

10. Court-Ordered Special Needs Trust Used in special situations where the disabled person has inherited money or received a court settlement and that money would otherwise disqualify them from receiving government benefits. Disadvantage: Remaining funds will be used to pay back the state of residence for whatever medical assistance the government provided to the individual after the trust was set up.

11. How to fund SNT’s Funding can come from savings, investment in stocks, bonds, or mutual funds, Certificates of Deposits, Individual Retirement Accounts, real property or standard government benefits. Family members or friends can name the trust as a beneficiary in their will.

12. Special Needs Trust Funds may not be used for basic needs Housing, medical treatments covered by Medicaid, food or clothing may not be purchased with SNT’s

13. Allowable purchases using trust funds The money can be used to purchase a home, which can then be rented to the beneficiary. The trust can pay for furniture, medical and health costs not covered by Medicaid, vacations, summer camp, trips, travel companions, or other recreation or entertainment. It can be used to buy sporting equipment, computers, haircuts, camera, bowling shoes (but not regular clothing), emergency legal costs, and funeral and burial expenses.