Special Needs Trusts
Special Needs Trusts and Supplemental Needs Trusts: SNTs
When you have a loved one with special needs due to physical or developmental disabilities, ensuring they receive the care and support services they need to live as fulfilling and independent a life as possible is paramount. Establishing a special needs trust, also referred to as a supplemental needs trust, can help your loved one qualify for benefit programs, protect their assets, and provide resources to enhance their quality of life. It can also offer your family peace of mind. Contact ELG Estate Planning today for an initial consultation with an estate planning attorney serving Spokane, Tri-Cities, and Seattle to learn more about special needs trusts and supplemental needs trusts and whether they suit your family’s needs and goals.
Understanding Special Needs Trusts and Supplemental Needs Trusts
Special needs trusts and supplemental needs trusts are specifically designed to protect the interests of individuals with significant physical or developmental disabilities. These trusts serve several key purposes, including:
Preserving Eligibility for Benefits: Ensuring the individual remains eligible for government assistance programs, such as Medicaid or Supplemental Security Income (SSI).
Protecting Assets: Safeguarding personal assets, such as a personal injury or workers’ compensation award or an inheritance.
Supplementing Income: Providing an income stream to improve the individual’s quality of life by covering expenses not included in government benefits.
Who Needs an SNT?
Special needs trusts benefit individuals who have severe physical, cognitive, or developmental disabilities and rely on government services such as Medicaid, Medicare, Social Security, and SNAP. If a disabled individual has significant assets, such as an inheritance, personal injury settlement, or real property, a trust can help protect these resources while maintaining eligibility for benefits. Families with loved ones who have special needs may also consider establishing a trust to ensure their loved one has financial security and protection even after family caregivers can no longer provide care.
Supplemental needs trusts also preserve assets from Medicaid spend down for a spouse who may need long-term care following the death of the first spouse.
Types of Special Needs Trusts and Supplemental Needs Trust
Trusts that protect eligibility for government benefits fall into one of three categories: first-party, third-party (testamentary or intervivos), and pooled.
First-party: A first-party special needs trust receives funding from the disabled individual’s own assets. In most cases, a first-party special needs trust is used for an individual who receives a personal injury or workers’ compensation settlement. Such trusts are typically referred to as special needs trusts or d4A trusts, referencing the federal statute authorizing such trusts, 42 U.S.C. § 1396p(d)(4)(A). The authorizing regulations include a requirement of “payback” to the State upon the death of the beneficiary. Under Medicaid’s rules, deceased individuals with first-party special needs trusts must repay the State from the remaining trust assets for Medicaid benefits they received during their life.
If the disabled person receives an inheritance, and if the deceased family member failed to include a testamentary special needs or supplemental needs trust in their Will or in their Revocable Living Trust for the disabled person, then a special needs d4A trust is required for the disabled person to remain eligible for their needs-based government benefits. The assets from the inheritance are placed into the special needs trust by the disabled individual. Though setting up such a d4A trust after inheritance is a solution to the problem of losing government benefits because of the inheritance, it is seen as a failure to implement good planning. Why? Because of the required payback provision to the State. Had the disabled person’s inheritance been directed by Will or Revocable Living Trust to a supplemental needs trust for the disabled person, no payback to the State would have been required and assets remaining in the trust after the death of the disabled person pass on to other family members and not to the State.
Third-party Testamentary Trusts: The type of trust created by a family member’s Will or Revocable Living Trust for their disabled loved one is referenced in the above paragraph. Such a trust is a third-party special needs trust, though more commonly is referred to as a supplemental needs trust. The terms of the supplemental needs trust are contained in the Will or Revocable Living Trust of the family member directing funds upon their death to their disabled family member. Such a testamentary supplemental needs trust ensures their disabled family member will remain eligible for government benefits and is an excellent estate planning tool. It allows a disabled person to receive funding from family members, friends, or other sources not outright, but into a supplemental needs trust, thereby preserving eligibility for benefits. Assets in the supplemental needs trust are non-countable by the State but are available for the disabled beneficiary. Such funds are used to improve a loved one’s quality of life by supplementing income received from Medicaid or other government benefits and provide a security net for care.
Third-party Lifetime Trusts: Third-party supplemental needs trust sometimes are set up during the lifetime of the family member (rather than upon their passing). For example, during their lifetimes parents may establish a supplemental needs trust for the benefit of a disabled adult child. Such a trust is referred to as a lifetime or intervivos supplemental needs trust. The parents may serve as trustees and manage the trust for their disabled child. Following the passing of the parents, another individual or organization then steps in to serve as trustee for the beneficiary. Like a testamentary supplemental needs trust, an intervivos supplemental needs trust does not require any payback to the State.
First and Third-Party Lifetime Trusts: A pooled special needs trust is funded with either the disabled person’s funds (most commonly) or third-party funds for a disabled person. Multiple individuals contribute assets, combining resources into a trust managed by a nonprofit organization. Participants will have sub-accounts in the trust through which they can receive their share of the trust’s income and principal. A pooled special needs trust’s advantages include sharing the costs of trust administration among the pooled trust’s participants and optimizing investments by gaining access to higher-value investments through pooled resources. Such trusts are referred to as special needs trusts or d4C trusts, referencing the federal statute authorizing such trusts, 42 U.S.C. § 1396p(d)(4)(C). Unlike d4A trusts, there is no payback to the State. Instead, if funds remain in the individual’s subaccount, such funds remain in the pooled trust for the benefit of other trust beneficiaries.
Benefits of Special Needs Trusts and Supplemental Needs Trusts
Special needs trusts and supplemental needs trusts offer disabled individuals and their families with various benefits, including:
Preserving Eligibility for Government Benefits – Special needs individuals may require assistance from government programs like Medicaid or SSI. However, eligibility for these programs depends on having income and assets below financial thresholds. Special needs trusts can remove assets from a disabled individual’s ownership to help them qualify for benefits.
Protection from Creditors and Misuse of Funds – Assets placed in a special needs trust or supplemental needs trusts gain protection from seizure by a disabled individual’s creditors. Putting assets in a trust also protects a disabled individual from misuse of the funds, such as if a person attempts to take advantage of or financially scam them.
Improving Quality of Life – Families can structure trusts to provide disabled loved one with an income stream that can pay for expenses not covered by Medicaid or other government benefits, such as internet access, hobbies, or educational programs. This additional income can help improve a special needs individual’s quality of life.
Long-Term Care Cost Protections – Spouses who may need long-term care can protect one-half to all of their assets for the benefit of the surviving spouse through use of a Will with a testamentary supplemental needs trust. None of the assets in such a trust are counted by Medicaid.
Role of the Trustee
Because families establish special needs trusts or supplemental needs trusts to protect disabled loved ones, a family member frequently serves as the trustee. However, families can also turn to professional trustees, such as attorneys, financial advisors, or trust companies. Various nonprofit organizations also provide trustee services for special needs pooled trusts.
In a special needs trust or supplemental needs trust, the trustee’s role includes gathering assets paid into the trust, managing the trust assets (such as by investing cash or managing property), and distributing income generated by trust assets per the trust document’s terms. The trustee also keeps an accounting of the trust and files tax returns as necessary. Finally, the trustee’s role also includes ensuring that the disabled individual complies with Medicaid or other benefit program rules.
How Can an Attorney Help Your Family Establish the right Special Needs Trust or Supplemental Needs Trust?
When your family wants to set up a special needs trust or supplemental needs for a disabled loved one, including protecting surviving spouses from possible impoverishment due to long-term care costs, a Washington estate planning lawyer from ELG Estate Planning can help you by:
Reviewing your loved one’s and your family’s circumstances and sitting down with you to discuss your needs and goals to identify tailored legal solutions
Helping you establish the proper type of special needs trust or supplemental needs trust for your loved one
Ensuring you understand the benefits and obligations of SNTS, including how they work with government benefit programs
Drafting necessary legal documentation to help you set up and fund your loved one’s trust
Providing experienced legal advice and guidance to help your family manage your loved one’s special needs trust or supplemental needs trust
Why Choose ELG Estate Planning?
Establishing a special needs trust or supplemental needs trust can become one of the most critical steps in protecting the rights and interests of a loved one with special needs. Choosing the right legal counsel can help make setting up and managing a special needs trust less stressful for your family. Turn to a trust attorney from ELG Estate Planning for help with your family’s special needs trust because:
We have become a regional leader in trust and estate law.
We focus exclusively on estate planning and elder law, providing extensive knowledge and experience in all estate planning and elder law matters, including special needs trusts, supplemental needs trusts, and government benefits eligibility, such as Medicaid long-term care.
We are committed to providing every client with the right plan, through compassionate, skillful and respectful legal representation.
Our attorneys know how stressful estate planning and elder law can be. Let us help you manage the legal and financial issues that can arise in setting up your estate plan, including trusts for your loved one.
Contact Us Today to Assist with Your Family’s Special Needs Trust or Supplemental Needs Trust
Establishing the right trust can help your family secure care for your special needs loved one and protect their interests and welfare, and securing experienced legal assistance can be an immense help in looking after your loved one’s needs. Contact ELG Estate Planning today for an initial consultation with our legal team to discuss your family’s options for establishing and managing a special needs trust or supplemental needs trust for a loved one in Washington.