Supplemental Needs Trust FAQ
What is a Supplemental Needs Trust?
It is a trust established for the sole benefit of a disabled person.
What can the trust funds be used for?
The trustee has full discretion to use the funds for anything that the beneficiary needs. The trustee is directed to "supplement" government entitlement programs such as Medicaid and Supplementary Security Income.
Whose funds are placed in the trust?
The trust may hold the assets of a disabled beneficiary under the age of 65, in which case it is a self-settled "payback supplemental needs trust." Or the trust may be established using a another person's assets (such as a parent or grandparent), in which case it is called a "third party supplemental needs trust."
When may the trust be created?
It may be created either in a Will (a "testamentary trust") or during the creator's lifetime (a "intervivos trust").
Why create a Supplemental Needs Trust?
1. Eligibility for Medicaid and SSI: Some government entitlement programs are needs based such as Medicaid and Supplemental Security Income ("SSI"). Social Security Disability Insurance and Medicare are not. If a disabled beneficiary is receiving Medicaid or SSI and receives an inheritance or a settlement from a malpractice or accident suit, the receipt of this money will make the disabled beneficiary no longer eligible for Medicaid or SSI. If, instead, his inheritance and/or tort settlement is placed into a Supplemental Needs Trust for the disabled beneficiary's sole benefit, his eligibility will not be affected.
2. Management of the Disabled Beneficiary's Funds: A Supplemental Needs Trust is a good vehicle to allow management and care of the disabled beneficiary after the primary caregiver (usually the parents or spouse) has died or has become disabled.
Who creates the trust?
If it is a payback trust holding the beneficiary's funds, it must be created by the beneficiary's parent, grandparent, guardian or a court. If it is a third party trust, it is created by the third party who can be anybody wishing to benefit the disabled beneficiary. For example, a trust can be established for a disabled beneficiary using donations made by his friends, or an inheritance from a relative.
Who can serve as Trustee?
Any trust worthy individual of sound mind, over the age of 18, except for the disabled beneficiary, can serve as Trustee. A corporate trustee, such as the trust department of a bank, may also serve as Trustee.
What happens to the trust funds after the death of the disabled beneficiary?
If it is a payback trust, the State is first paid back for any Medicaid provided to the beneficiary during his lifetime. Then estate administration expenses and funeral costs are paid. Any balance is paid to the beneficiary's estate or people designated in the trust. If it is a third party trust, there is no payback provision. The balance remaining in the estate after the funeral and estate administration expenses is paid to the beneficiary's estate or the people designated in the trust.
What is a "Pooled Income Trust?"
A Pooled Income Trust is a third type of supplemental needs trust for disabled beneficiaries. It can be created by a competent disabled person to hold his or her assets. The disabled person does not have to be under the age of 65 to establish the trust. It is managed by a nonprofit association for the disabled beneficiary's sole benefit. At the death of the disabled beneficiary, the balance remaining in the trust is retained by the nonprofit association and placed in the pool for other disabled individuals. This an useful trust for competent disabled individuals who have no close relative who can act as trustee. It is also a useful trust for parents of children with disabilities to ensure a support-network for their children after the parents' death as the nonprofit association that serves as trustee is usually the same organization that provides advocacy and services to disabled people.
