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| Special Needs Trusts | |
SNTs are trusts that hold funds for the benefit of a disabled individual without disqualifying that individual from receiving government benefits. SNTs can be used to enrich a disabled person’s life by paying for supplemental needs and luxury items that are not provided through public benefit programs. The assets of a properly-drafted SNT are not considered to be assets of the disabled individual because (1) the beneficiary has no right to distributions of income or principal of the trust, and (2) distributions from the trust made on behalf of the disabled individual are made directly to third-party providers. Are there different types of SNTs? SNTs are either first-party (self-settled) or third-party trusts, depending upon whether the disabled individual or another person provides the funds for the SNT. Both types of SNTs are used to protect the assets of the trust and provide supplemental benefits to a disabled individual without rendering him ineligible for government assistance. The primary difference between these two types of trusts is that if the SNT is funded with the disabled individual’s own assets, the government has a right to be repaid from the funds remaining in the trust when the disabled individual dies. The government can seek reimbursement from the SNT up to the total amount of medical assistance paid on behalf of the disabled individual by the government during his lifetime. If the SNT is funded with the assets of a third person, the government has no such right to reimbursement, and the person who funded the SNT may direct where the funds remaining in the SNT go when the disabled individual dies. How should SNTs be funded? There are many different ways to fund a SNT. A trust may be set up for the benefit of a disabled individual with settlement proceeds following a personal injury or medical malpractice action which gave rise to the disability. A person may choose to fund a SNT on behalf of a disabled individual during his lifetime as part of a strategy to protect assets from creditors and reduce total assets for tax or Medicaid planning purposes. In addition, a SNT may be funded upon a person’s death by naming the SNT as beneficiary of retirement or pension plans or by directing in a will that some or all of such person’s assets go into the SNT. If a person wants to provide for a disabled individual but does not have substantial assets to fund a SNT, he may purchase a life insurance policy and name the SNT as beneficiary. What are the alternatives to using SNTs for a disabled child? Parents who do not set up SNTs for their disabled children typically either (1) leave their assets directly to a special needs child and assume that their non-disabled children will be able to care for themselves, or (2) leave their assets to their non-disabled children with the understanding that such siblings will care for the disabled child. The first scenario is unwise from both an emotional and financial standpoint. Emotionally, this could breed family resentment and deprive the disabled child of much needed support from surviving family members. Financially, a disabled individual will be rendered ineligible for government assistance any time he owns assets exceeding $2,000. This means that if a disabled individual receives an inheritance which raises his assets over the $2,000 threshold, he will lose his government benefits and will be forced to spend this inheritance for his care until his assets are once again depleted to $2,000. The second scenario is also undesirable because it creates a moral rather than legal obligation, and does not ensure that any money will actually be used for the benefit of the disabled child. Even siblings with the best intentions will not be able to use inherited money for the benefit of the disabled sibling if this money becomes subject to the claims of creditors or ex-spouses. Therefore, SNTs are the only way to ensure that a designated portion of a parent’s estate will be available for the supplemental or luxury needs of a disabled individual without sacrificing the benefits of government programs. |
What are special needs trusts (SNTs)?
For assistance with your estate planning needs, please contact the Law Office of Jill A. Snyder, LLC at (410) 864-8788
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