If you have a child with special needs, a special needs trust, or “SNT,” may be an important part of your comprehensive estate plan. An SNT is a specific trust designed to meet the needs of a beneficiary with a physical or mental disability. Different from other types of trusts, the SNT can provide for the beneficiary without risking the beneficiary’s eligibility to receive government assistance like Medicaid and Supplemental Security Income (SSI) that are means-tested benefits.
Protecting Government Benefits
The government provides benefits to people with disabilities, but the assistance is usually based on asset or income limits. A carefully drafted SNT can provide for the person with the disability, called the trust beneficiary, without jeopardizing eligibility for the government benefits. This is because the trust beneficiary doesn’t own the trust assets; rather, the trust itself owns the assets and the trustee manages the assets on behalf of the trust beneficiary.
First Party and Third Party SNTs
Basically, two different types of SNTs can be used to take care of a special-needs beneficiary: a first party SNT, which is also sometimes referred to as a self-settled trust and a third party SNT, which is also sometimes referred to as a supplemental needs trust.
In a first party SNT, the person with the disability (as classified by the Social Security Administration) both funds the trust with assets or income and is the trust beneficiary. This is why a first party SNT is also referred to as a self-settled SNT. These funds typically come from a personal injury settlement, a retirement account, or an inheritance.
By federal law, these trust assets will not count for Medicaid or SSI purposes as long as these requirements are met:
• the trust must be created and funded before the beneficiary turns 65;
• the trust must be irrevocable;
• the trust provisions must provide for reimbursement to Medicaid upon termination of the trust; and
• the trust must be administered exclusively for the beneficiary’s benefit.
Third Party SNT
Unlike the first party SNT, the beneficiary’s funds may not be used to fund a third-party trust. A third party SNT is usually funded from gifts, inheritance, or life insurance proceeds. A third party SNT does not have to reimburse Medicaid upon termination. The trust maker decides how the trust estate is to be distributed when the trust terminates.
Proper Drafting Is Essential
An SNT serves an important function but it must meet exacting legal requirements. Each SNT is specific to the needs of the beneficiary, so there is no “one size fits all” approach. In addition to the needs of each beneficiary being unique, state laws have different requirements as well. An improperly drafted SNT can result in significant tax consequences. When it comes to drafting an SNT, working with an experienced estate planning attorney is critical.
Work with an Experienced Corning Estate Planning Attorney.
If you need to set up a special needs trust, we can help. Call Roth Elder Law, PLLC today to schedule an initial meeting at 607-962-6162 or complete this intake form and we’ll be in touch.