Supplemental Needs Trusts
A Supplemental Needs Trust is a trust which is usually set up to permit distributions of income and/or assets to a person who receives a government benefit for which eligibility depends on the amount of the beneficiary's income and resources -- such as Medicaid. The resources in, and income generated by, the trust are not counted when determining whether the beneficiary is, or continues to be, eligible for assistance.
The concept is to provide for the beneficiary's needs beyond those supplied by the benefit program. For example, to provide for vacations, over-the-counter medicines, upgraded medical procedures, reading material, recreation, or improved housing.
Supplemental Needs Trusts also provide for continuity of care. If the money were left to the beneficiary in a Will, there would be a time lag while the Will is probated and there may even be disqualification if the amount received is in excess of the amount permitted for benefit eligibility. On the other hand, if a Supplemental Needs Trust is used, the trustee may use the funds continuously.
Supplemental Needs Trusts are generally set up by people other than the beneficiary, the beneficiary's spouse, or someone legally responsible for the beneficiary's living or health care expenses ("Third Party Trusts"). Trusts for disabled people may even be established with the disabled person's own funds if certain guidelines are followed.
If incorrect terms are set in the trust, or if the Trustee doesn't follow the instructions, the beneficiary may lose both the SSI benefit which triggers eligibility for Medicaid, and Medicaid. In addition, any benefits previously paid by Medicaid may be recovered.
- Trustees of a Supplemental Needs Trust should be instructed to make payments only for benefits over and above what the government provides during the term of the trust. That said, no distributions can be guaranteed. Distributions have to be discretionary with the trustee so that there is no "right" by the beneficiary to compel any distribution. If a beneficiary can compel a distribution, then the amount of the trust may be considered by a state in determining eligibility for benefits.
- Distributions from the trust to the beneficiary may be "in kind" rather than in cash. For example, the trust may own items such as furniture and allow the beneficiary the use of them.
- The beneficiary may not control or have direct access to any portion of the trust.
The document which creates the trust determines what happens to the resources and income when the beneficiary dies.
The Trustee can be anyone other than the beneficiary. It is possible to choose both a personal and a professional trustee, so that the family member can provide the personal input while having the professional trustee handle the administrative items, such as monitoring investments and preparing tax returns. To learn more, see: Choosing A Trustee.
It is advisable to hire an experienced lawyer to draft a Supplemental Needs Trust which will accomplish what you want under the laws of the state in which you reside.
A Supplemental Needs Trust replaces the concept of leaving the beneficiary's inheritance to someone else, such as a brother or sister -- with the understanding the sibling will take care of the beneficiary. Leaving the money to someone else doesn't protect the beneficiary if the other person runs into financial difficulty, has a divorce, predeceases the beneficiary, or decides to keep the money for him or herself.
Jerry Simon Chasen, Esq.
Chasen & Associates, P.A.