This entry is for initial inquiries into or foundational understanding of Supplemental Needs and Special Needs Trusts. There are some basic differences between the two and they are often confused. If you think you may qualify to establish one of these types of trusts, contact an experienced attorney who handles Special Needs Planning, and let them assist you in making sure you’re creating a document that will serve your purposes and meet your goals.
A couple of basic things both types of trusts have in common:
Both types of trusts are created under Federal Statutes, but both also have specific Minnesota requirements as well. And, for both types of trusts, the beneficiary (the person who benefits from the trust) must be certified disabled.
Some basic differences between Supplemental Needs Trusts and Special Needs Trusts:
Supplemental Needs Trusts are essentially an Estate Planning tool. In Estate Planning, typically, an individual plans for the needs of someone else upon their death – – this is why these are considered “third party” funds (funded with someone else’s assets upon their death, other than the person who will be benefiting from the Trust). They can be structured only to complement or “supplement” public funding sources for the disabled (not replace or reduce public funds). Very specific provisions must be provided in the trust to continue to allow eligibility for these public funds, although a final distribution of funds that remain upon the death of the beneficiary may be dispersed to individuals of the creator’s choice. Parents of disabled children are the most common creators (also called “settlors”) of these kinds of trusts. Other “third parties,” such as spouses of the disabled person, or other people obligated to pay settlements or judgements are not allowed to establish a Supplemental Needs Trust, because they are already obligated to support the beneficiary. Certification of disability can happen in a number of ways (although timing of certification can be crucial).
Special Needs Trusts are essentially an Asset Protection tool, which is one of the few trust protections allowed with Medical Assistance (MA) or SSI. Typically, an individual is looking to protect their own assets – – this is why these are considered “first party” funds (funded by the beneficiary’s own funds, but through someone else or the court – – not the beneficiary themselves). The beneficiary must be disabled and under 65 years old when the trust comes into existence. And, similar to the Supplemental Needs Trust, the funds can be used to “supplement” public funding sources (not replace) but must be used for the sole benefit of the beneficiary and must be distributed by a trustee, not directly to the beneficiary but to make purchases for the sole benefit of the beneficiary. For final distribution, the State(s) in which the beneficiary received MA will be reimbursed first, then what’s left to a recipient of choice. Certification of disability can happen in a number of ways (although timing of certification can be crucial).
“Pooled Special Needs Trusts” are in this same category, but the trust funds are “pooled” with other funds and administered by a certified non-profit. The other rules remain the same as above, with the exception that the non-profit can retain 10% of any remaining funds before the state is reimbursed, the beneficiary themselves can fund the trust, and the beneficiary can be of any age.
Here are just some of the ways an experienced attorney can assist and help navigate:
Disability status certification and timing;
Eligibility maintenance for public assistance;
Drafting of important qualifying provisions;
Knowledge of various public assistance programs;
Assessment of current vs. future needs;
Goals for planning;
Changes in federal and state requirements for qualifications.
If you would like to discuss the formation of a Supplemental and/or Special Needs Trust, contact an experienced attorney and let them help you decide which tool(s) best suit your needs and goals.This blog is written by Bridget-Michaele Reischl, Attorney DECORO LAW OFFICE, PLLC www.decorolaw.com