Special Needs Trust
A Special Needs Trust (SNT) is set up for a person with special needs. The SNT provides additional support for a person who is or may in the future receive benefits from any government program. A Special Needs Trust will allow the beneficiary to receive government benefits while still receiving funds from the trust. The assets in the SNT are not subject to a lien during the life of the beneficiary.
A trust is really a relationship between three parties: 1. The person who creates the trust, often referred to as a Donor, Grantor or Settlor. This person supplies the funds for the trust either during life or upon death; 2. a Trustee, who agrees to hold and administer the funds according to the donor’s wishes for the benefit of the beneficiary; and 3. a Beneficiary or beneficiaries who receive the benefit of the funds.
A Special Needs Trust is specifically drafted in a manner that will provide support for the Beneficiary while not affecting the Beneficiary’s access to important government benefits. There are three main types of Special Needs Trusts: 1. the first-party trust, 2. the third-party trust, and 3. the pooled trust. All three name the person with special needs as the Beneficiary. A “first-party” SNT holds assets that belong to the person with special needs, such as an inheritance or an accident settlement. A “third-party” special needs trust holds funds belonging to other people who want to help the person with special needs; often a parent or grandparent. A pooled trust holds funds from many different beneficiaries with special needs such as a PLAN Trust.
The reason there are several different types of trusts has to do with regulations regarding Supplemental Security Income (SSI). SSI is a government program that assists people with low incomes who have special needs. In order to qualify for SSI, an applicant or beneficiary can have only $2,000 in their own name. If the person is also on Medicaid in Connecticut, then this amount is reduced to $1600. If the person has more than $2,000 in his own name, (typically because of excess savings, an inheritance or an accident settlement), the government allows them to qualify for SSI so long as they place their assets into a first-party SNT. While the beneficiary is living, the funds in the trust are used for their benefit, and when they die, any assets remaining in the trust are used to reimburse the government for the cost of their medical care. These trusts are especially useful for beneficiaries who are receiving SSI and come into large amounts of money, because the trust allows the beneficiary to retain their benefits while still being able to use their own funds when necessary.
The third-party SNT is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party SNT during the Beneficiaries life in that the assets held in the trust do not affect an SSI beneficiary’s access to benefits and the funds can be used to pay for the beneficiary’s supplemental needs beyond those covered by government benefits. But a third-party SNT does not contain the “payback” provision found in first-party trusts. This means that when the Beneficiary with special needs dies, any funds remaining in their trust can pass to other family members, or to charity, without having to be used to reimburse the government.
A pooled trust is an alternative to the first-party SNT. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources for investment purposes, while still maintaining separate accounts for each beneficiary’s needs. When the beneficiary dies, the funds remaining in their account reimburse the government for their care, but a portion also goes towards the non-profit organization responsible for managing the trust. PLAN of CT is a pooled trust.
Special Needs Trusts are an important part of estate planning and elder law planning. Each client’s individual circumstances are important to discuss and understand when determining when a Special Needs Trust is appropriate, and which one best fits the client’s needs. Please contact Ericson, Scalise & Mangan, P.C. to discuss this in greater detail.