Why a Special Needs Trust?
A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is a specific kind of trust that is tailored for an individual with disabilities. The reason there are SNTs has to do with regulations regarding Supplemental Security Income (SSI). SSI is a government program that assists people with low incomes who have special needs. In order to qualify for SSI, an applicant or beneficiary can have only $2,000 in their own name. If the person has more than $2,000 in their own name, (typically because of excess savings, an inheritance or an accident settlement), the government allows them to qualify for SSI so long as they place their assets into a first-party special needs trust.
This supplemental fund can pay for an entire range of services and goods that are NOT covered by public programs. SNT’s have two general categories, Non-pooled and Pooled and within each category there are two SNT designations, first and third-party.
Let’s first review the designations and then we will explore the categories.
There are basically two designations: First-party (also commonly called self-settled SNTs, Medicaid payback trusts, OBRA ’93 trusts, and d4A or d4C trusts) and a Third-Party. These Supplemental Needs Trusts are differentiated by the party (grantor aka settlor) that funds the trust. As you may imagine, a first-party trust is funded by the beneficiary and a third-party trust is funded by someone other than the beneficiary. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments.
Another difference between third-party SNTs and first-party SNTs is what happens to property/assets when the beneficiary passes. Upon the beneficiary’s death, the third-party SNT is not required to use the remaining assets to reimburse any state(s) for the Medicaid benefits received by the beneficiary during his or her lifetime. Whereas in a first-party SNT, reimburse for the Medicaid benefits received by the beneficiary during his or her lifetime must be repaid prior to distribution to beneficiaries.
It’s also important to note that both non-pooled Supplemental Needs Trust’s discussed should have legal counsel draft the language in the trust. SNT attorneys are equipped to make sure language in the trust will not jeopardize the beneficiary’s eligibility for asset-tested public benefit programs. Above are the basic differences, there are other stipulations and benefits for both trust options that can be reviewed on our website. For this introduction the above is a brief view of the primary differences.
The categories of Non-pooled and Pooled SNTs at times can cause the greatest confusion. Hopefully, after this description you will have a better understanding of the differences and value of each.
Non-Pooled Trusts are what most people think of when discussing trusts. Meaning, The funds involved tend to be significant, a lawyer drafts the trust placing specific stipulations and directions in the trust document. Additional beneficiaries are assigned to the trust in the event that there is a residual upon the demise of the initial beneficiary. Remember, in a first-party (self-funded) trust, reimburse for the Medicaid benefits received by the beneficiary during his or her lifetime must be repaid prior to distribution to beneficiaries. The investment of funds is individualized and maintained in a separate investment account. Again, there are additional elements unique to non-pooled trusts but as an overview these are the highlights.
A Pooled SNT can ONLY be provided by a charitable trust organization. The trust can be either a first or third-party trust and is typically funded with a modest investment. Because a Pooled SNT has a Master Trust Document that is approved by the state, legal counsel is not necessary to draft the trust. This fact can save thousands of dollars for the use of the beneficiary.
On the investment side of the funds, all the pooled trust investments are invested together in a “pooled investment” and maintained individually for the beneficiaries use. The significant differentiation between pooled and non-pooled is; upon the demise of the beneficiary, the assets are retained by the charitable trust for the benefit of the pooled trust members.
It is also important to note that both categories of trust receive identical service and support. Neither option is greater than the other, it’s simply a choice that will fit your individual or family situation.
So how to choose a Supplemental Needs Trust. The selection of a Trust option that works for you and your family is based on your unique situation. ACT is equipped to assist you in developing a plan and approach that will meet the desire of your family. Through our experiences, ACT has developed a network of excellent SNT attorneys that can work with you on first and third-party trusts. We also have professional staff who can assist you with establishing a pooled trust, if that is the best option.
You may have other questions, such as; do I need a special needs trust, how to fund a trust, what can be paid for from a trust or can’t I simply start an ABLE account. The links will provide additional insight into those questions but feel free to contact ACT and we will discuss those as well as any other concern you may have.
Day-to-Day with ACT
Our day-to-day special needs trust services include, but are not limited to:
Supervising all aspects of the trust and at all times acting in the beneficiary’s best interests;
Offering a line of defense against undue influence from existing friends or family, outside caregivers, and new friends who may suddenly appear once a trust is funded;
Abiding by the terms of the trust and reviewing each distribution against a standard of “reasonableness”;
Taking custody of cash, maintaining transactional records for receipts and disbursements, preparing tax letters and tax returns for the trust, issuing account statements and providing accountings as required by the court as well as other outside authorities;
Monitoring and reviewing the performance of the investment manager and making changes that are in the best interests of the beneficiary;
Coordinating the payment of bills and expenses, and taking charge to follow through on implementing many of the services outlined in a care plan for the beneficiary;
Maintaining relationships with other service providers in an effort to contain costs, including public benefit agencies and medical cost containment companies;
Determining if it is necessary to purchase a vehicle or house and identifying the specific needs as well as coordinating the purchase;
Coordinating payroll for caregivers recommended by a case manager, if such services are not provided by a private agency or Medicaid; and
Supporting the implementation of recommendations made by a case manager to enable the beneficiary to receive the highest quality of care.
Get Connected Today!
If you have questions, need guidance or would like to speak to an ACT staff member about a specific issue, please send us an email through our contact form. ACT also is able to provide organizations and groups speakers on a variety of Trust and Trust related topics. Simply contact us and we are happy to make the appropriate arrangements. We look forward to hearing from you!