Special Needs Trusts are also known as Supplemental Needs Trusts or Supplemental Benefits Trusts. Special needs or disabled persons are often receiving benefits for medical coverage and shelter expenses through public benefits. This may be through the Social Security Administration or through Medicaid (renamed MO HealthNet in Missouri). The key to the Special Needs Trust is to make sure that it supplements the beneficiary’s needs rather than “supplant” or displace public benefits. This means that the funds in trust cannot be used for the same items for which the special needs person is receiving public benefits. The Special Needs Trust contains language stating that funds are only to be used to supplement expenses and are not to be used for anything for which the person is currently receiving public benefits (so as not to displace the public benefits), and the trustee must follow those terms strictly.
There are different types of Special Needs Trusts. The two most utilized are the Self-Settled Special Needs Trust and the Third Party Special Needs Trust, which are both versions of irrevocable trusts.
Self-Settled Special Needs Trusts
The Self-Settled Special Needs Trust, also known as a “(d)(4)(A)” trust, is established by the beneficiary’s parent, grandparent, legal guardian, or the court. The trust is funded with assets owned by the beneficiary from their own investments or with assets received from inheritance, gift, personal injury settlement, or court judgment. The trust will contain a payback provision to MO HealthNet (Medicaid) upon the death of the beneficiary or upon trust termination for any other reason if the beneficiary received Medicaid benefits.
Third Party Special Needs Trusts
Assets from a third party are used to fund a Third Party Special Needs Trust, which can be from any person. Since the assets used to fund the trust are not owned by the beneficiary, the trust does not require payback provisions to MO HealthNet (Medicaid) for beneficiaries receiving Medicaid benefits. These trusts are used often by family members to leave inheritance funds to special needs children or adults.
PLEASE NOTE: Special rules apply to beneficiaries over the age of 65.
Why create a Special Needs Trust?
The primary purpose of the Special Needs Trust or Supplemental Needs Trust is to keep the disabled or special needs person eligible for government programs while providing a mechanism to shelter resources to pay for their additional needs. The Special Needs Trust can be used to maximize the use of government-provided services while enhancing the comfort and enjoyment of life for the disabled or special needs beneficiary. The Special Needs Trust is drafted so that the funds kept in trust will not be considered to belong to the beneficiary in determining his or her eligibility for public benefits such as Medicaid, Supplemental Security Income (SSI), or public housing. The funds held in trust are not designed to provide basic support but are instead used for comforts and luxuries such as education, counseling, recreation, and entertainment. Each public benefits program has restrictions that must be complied with in order not to jeopardize the beneficiary’s continued eligibility for public benefits. For instance, payments by the trust for food or housing would cut SSI benefits dollar for dollar. The trustee must be very careful with spending funds from the Special Needs Trust and make sure expenditures are limited only to the comfort and luxury expenses when public benefits are involved.