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Estate Planning and Supplemental Needs Trust

Estate Planning and Supplemental Needs Trust

When planning for the differently-abled, the use of Supplemental Needs Trusts as part of your estate planning will ensure that you have provided protections for those with special needs and disabilities. When considering your estate planning it is important to consider any beneficiaries who may have special needs or disabilities. Receiving an outright inheritance could negatively affect these individuals, as oftentimes they are entitled to, and receive, need-based government benefits such as SSI, Medicaid, and Group Housing, to name a few, which either supplement or fully cover the living and medical expenses of the individual. Safeguarding these benefits by using Supplemental Needs Trusts rather than an outright distribution can ensure that you can leave to a loved one who has special needs without the risk of interfering with their government benefits. 

Supplemental Needs Trusts can be established as “first-party” or “third-party trusts”. This article highlights Third-Party Supplemental Needs Trusts which are, simply stated; trusts funded with the assets of a third-party, anyone other than the differently-abled individual. To understand the difference, first-party trusts are funded with the assets or income of the differently-abled person and are often used to safeguard benefits after the individual receives an inheritance or some other windfall. First-Party Supplemental Needs Trusts are also often used to protect money that was in the name of the individual at the onset of a disability. First-Party Supplemental Needs Trusts are available to persons under the age of sixty-five, and thanks to recent legislation, can be created by the individual him or herself, a parent, guardian, or through the court. Although a terrific planning tool, when possible it is preferable to address these planning needs ahead of time to ensure no interruption of benefits and a maximum preservation of assets. The first-party trust requires a payback provision which dictates that any monies that remain in the trust at the time of the individual’s death must be paid to the State in an amount equal to the medical assistance paid on behalf of the individual. 

Third-Party Supplemental Needs Trusts can either stand alone or be incorporated into your estate planning. These trusts can be created by anyone for the benefit of the disabled individual. They can be funded upon creation or can be prepared with the idea of funding at the time of the death of the creator. The assets in the trust can be used to provide the individual with comforts they would otherwise not be able to afford. Because these trusts are set up with the funds of a third-party, unlike the First-Party Supplemental Needs Trusts, they do not have a payback provision. Upon the death of the original beneficiary of the trust, whatever assets remain in the trust can be distributed in accordance with the Grantor’s wishes. By leaving assets in a Supplemental Needs Trust, you would be able to provide for your loved one and ensure the continuation of imperative benefit that he or she relies on. 

It is important to note that funds between a first-party trust and a third-party trust should never be co-mingled. Specifically, if monies which originated with the disabled individual goes into a third-party trust, the protections afforded to third-party trusts (i.e. no payback provision) may extinguish and a payback could be required. 

Overall, Supplemental Needs Trusts are invaluable for planning for those differently-abled. The Trusts can enhance the quality of life for the person and supplement the benefits he or she is already receiving.

 

- Robin Burner Daleo, Esq. and Nancy Burner, Esq. 

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