A Special Needs Trust (SNT) is a specific type of trust which preserves a beneficiary’s ability to receive needs-based government benefits such as Medicaid and Supplemental Security Income (SSI) by ensuring that assets set aside or gifted to an individual with special needs are not inadvertently counted towards the government asset limits used to determine eligibility. This article will discuss how this type of trust allows beneficiaries to remain eligible for government benefits, the duties of the trustee, what the trust funds can be used for and the difference between a Third-Party Special Needs Trust and a First-Party Special Needs Trust.
A Special Needs Trust plays a vital role in providing financial security to a beneficiary without leaving them ineligible for government benefits. The funds transferred to an SNT belong to the trust not to the beneficiary and therefore are not considered an asset owned by the beneficiary when determining eligibility for government benefits. The SNT is intended to supplement the beneficiary’s government benefits. For instance, funds from an SNT can be used to pay expenses not covered by government benefits such as out of pocket medical or dental costs, personal caregivers and rehabilitation services. Additionally, the funds can be used to enhance the quality of the beneficiary’s life by paying for entertainment, vacations, education, transportation or home repairs.
An SNT Trustee is the person or entity who manages the trust assets for the trust. A trustee can be a family member, a friend, a corporate trust department, or an attorney. It is the SNT Trustee’s fiduciary responsibility to appropriately manage the day-to-day activities of the SNT. The trustee is responsible for protecting trust assets and making certain that the funds are used sensibly, wisely and for the sole benefit of the beneficiary. If the trustee invests the funds, they must make certain that the investments are prudent and not overly risky. Unless otherwise stated in the Trust Agreement, a trustee is entitled to compensation for their service. The amount of compensation is based on the value of the Trust Estate.
There are two types of Special Needs Trusts, namely a Third-Party Trust (sometimes called a Supplemental Needs Trust) and a First-Party Trust (also known as a Self-Settled Special Needs Trust). A Third-Party SNT is funded with assets belonging to a person other than the beneficiary, such as a gift from a parent or grandparent of a disabled child or proceeds from a life insurance policy that specifically names the SNT as the beneficiary. The person creating this trust, known as the Grantor, can name an individual to receive the remaining assets after the SNT Beneficiary passes away. A First-Party SNT is funded with assets or income belonging to an individual with a disability. Federal Law requires that the beneficiary of this type of trust be under the age of 65 when the trust is created and funded. Additionally, the trust must be irrevocable and must provide that Medicaid will be reimbursed upon the beneficiary’s death or termination of the trust, whichever comes first. This is called a Medicaid Payback Provision.
Special Needs Trusts are complex. It is imperative that trustees and trust beneficiaries understand the terms in the written trust agreement. A legal professional experienced in special needs planning can ensure that the trust document will meet the needs of the trust beneficiary, the person who is funding the trust and the trustee who is administering the trust. If you have questions or wish to have a Special Needs Trust prepared for your loved one, please contact Mavros Panagos Law at 516-447-0455 or visit www.mavrospanagoslaw.com to schedule your free consultation.
Eleni Mavros Panagos, Esq.
Mavros Panagos Law
200 Broadhollow Road, Suite 207
Melville, New York 11747
(516) 447-0455
www.mavrospanagoslaw.com
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