A Special or Supplemental Needs Trust (SNT) is a Trust established for individuals who have disabilities and receive or may receive in the future certain types of government assistance, such as Supplemental Security Income (SSI) or Medicaid. Because eligibility for these programs is predicated on the amount of the individual’s assets and income, the creation of a SNT benefits the individual by changing the nature of the assets from countable to non-countable in determining the individual’s eligibility for these government benefits.
There are several types of SNTs:
1) A (d)(4)(a) Trust is for persons under 65 and is named for the section numbers of the Federal law which authorizes the creation of the trust. It is funded with the beneficiary’s own assets and is established to protect those assets, while still allowing the beneficiary to receive both Medicaid and/or SSI benefits. This type of SNT is often used when an individual receives funds through settlement of a claim, prevailing in litigation, or inheriting funds. This type of trust must include a “payback” provision. The “payback” provision requires that upon the death of the beneficiary of the trust, remaining assets must first be used to pay the government back for the assistance it provided; remaining funds can then be distributed to named beneficiaries.
2) A (d)(4)(b) or Qualified Income Trust or (QIT) is a trust into which the income of the beneficiary is deposited in order to allow an individual who would otherwise have income above the eligibility limit to qualify for benefits. A QIT must have a payback provision.
3) A (d)(4)(c) or Pooled Trust works like a (d)(4)(a) trust, except the individual may be over the age of 65. The trust is administered by a charitable organization. After the death of the beneficiary the remaining assets must either pay back the government to the extent of benefits received, or the charity may retain the remaining assets to be used for charitable purposes.
4) Third Party Special Needs Trust allows any individual, other than the beneficiary, to put funds into a SNT for the supplemental or other needs of a person with a disability who receives government benefits or may receive them in the future. The SNT pays for services and luxury items that government benefits do not provide, including dental work, special cosmetic or beauty supplies, and travel. The beneficiary cannot control the distribution of principal or income from the Trust. A Third Party SNT can be created by a Will. No payback provision is required in a Third Party SNT.
All types of Special Needs Trusts are governed by well-defined rules of creation and administration; therefore, it is very important to seek the advice of an experienced Elder Law attorney to assist in the creation of an SNT.
