Government programs — in the form of Supplemental Security Income (SSI) and Medicaid — are crucial for people with disabilities in need, as they provide cash benefits, important medical coverage and long-term supports and services. However, benefit recipients can typically retain only $2,000 in total assets without losing eligibility.
Fortunately, supplemental needs trusts or special needs trusts (SNTs) are an exception. As long as certain parameters are met, these trusts preserve eligibility while funding supplemental needs — those that go beyond food, shelter, clothing and Medicaid benefits. In fact, the SNT must be designed specifically to supplement, not supplant, government benefits. Money from the trust cannot be distributed directly to the person with a disability, but instead to third parties to pay for goods and services for that person’s use.
SNTs can cover a wide range of expenses, including:
- Out-of-pocket medical and dental expenses
- Annual independent check-ups
- Transportation (including vehicle purchase)
- Maintenance of vehicles
- Insurance (including payment of premiums)
- Essential dietary needs
- Materials or equipment for a hobby or recreational activity
- A computer or electronic equipment
- Trips, vacations or entertainment, like going to a movie, a ballgame, concert, etc.
- Goods and services that add pleasure and quality to life, like furniture, a television or videos
- Athletic training or competitions
- Personal care attendant or escort
Setting Up an SNT
The laws governing trusts are complex and are subject to changes in legislation that may vary by state. New laws have considerably tightened the eligibility criteria for government benefits and thus have affected many aspects of the way SNTs are drawn up. Setting up an SNT requires coordinated planning with an attorney knowledgeable in special needs planning who can draft a will and necessary trust documents.
Managing the SNT
Having an SNT requires a trustee to be appointed. A trustee is one who manages another’s property and may be a person or an institution such as a bank. In this case, the trustee is the manager of the trust and has general unlimited discretion to use trust proceeds for the needs of the individual with a disability. The SNT should be drafted in a way that directs the trustee in how to use the trust’s resources for the individual’s needs. Trustees should have good money management/financial skills. The SNT will likely exist for a long period of time. Trustees should be chosen with longevity in mind, and the trust itself should be drafted to adjust to changing circumstances, such as to allow trustees to be changed or removed. After the death of the individual with a disability, the trustee oversees the final arrangements, and the SNT usually ends. However, the trustee may terminate the SNT if laws change or the SNT is challenged by the government.
Other Common Types of Trusts:
- Pooled Income Trusts/Community Trusts
- Medicare Set-Asides
- Settlement Preservation Trusts
- Qualified Settlement Funds