Special Needs and Supplemental Needs Trusts – Planning for a Disabled Dependent

If you have a child, sibling, parent, spouse or other loved one who is physically, mentally or developmentally disabled — whether from birth, illness, injury, or drug abuse — that disabled person may be entitled to receive government benefits (SSI, SSDI, and/or Medicaid) if their assets are limited.

As a result, you may find yourself faced with a difficult choice. If you leave a substantial inheritance to the disabled person, they may be disqualified from receiving government benefits, which may be crucial for their care. On the other hand, you may not want to disinherit them in order to preserve these benefits.

Fortunately, a special needs trust or a supplemental needs trust can keep you from having to make this wrenching decision. For assistance in establishing a special needs or supplemental needs trust, contact Sjoberg & Tebelius, P.A., at 651-315-8856.

What’s the difference between a special needs trust and a supplemental needs trust?

A special needs trust is established for the benefit of a disabled person under the age of 65 by a parent, grandparent, guardian, or the court, and it is funded with assets already belonging to the disabled person. The State receives all amounts remaining in the trust upon the death of the disabled person up to an amount equal to the total medical assistance paid.

A supplemental needs trust, on the other hand, is funded by third parties (parents, grandparents etc.) and contains assets that the disabled person never had any past, present, or future ownership claim. Upon the death of the disabled person, the remaining trust assets are distributed to the remainder beneficiaries named in the trust, and there is no reimbursement to the State.

How is a special needs trust and supplemental needs trust the same?

Both types of trusts must be very specific in stating that their purpose is to supplement government benefits, to provide only benefits or luxuries above and beyond the benefits the disabled person receives from any local, state, federal or private agencies.

It is critical that the trusts do not duplicate any government-provided services and that the disabled person does not have any resemblance of ownership of the trust assets. Otherwise, the government could attempt to seize the trust assets for repayment of services already provided or determine that the disabled person does not qualify for future benefits.

To accomplish this, you will need to give the trustee complete control over the distribution of the assets and any income they generate; the special needs beneficiary cannot be able to demand any principal or interest from the trust.

Give careful consideration to your choice for trustee. Of course, you (and your spouse) will continue to provide for this loved one while you are alive and able. But someone will need to assume this responsibility after your death or incapacity.

The most obvious choice is another family member who also cares deeply about this person. But be aware of possible conflicts of interest, especially if the successor trustee will inherit the trust assets after your disabled dependent has died. The trustee should not care more about preserving trust assets than they do for providing for the disabled person.

To avoid conflicts, consider using (or adding) a corporate trustee (i.e. a bank or trust company) that specializes in managing trusts. They can be impartial, and they will be around for as long as your special needs beneficiary lives.

Finally, be sure to work closely with an attorney who has considerable experience with these trusts because the rules are complex and one misstep can cause the trust to not work as intended.