In the spirit of saving best for last, this Newsletter concludes our three-part series, “Trust Planning - a Primer,” with a presentation and analysis of the Special–or Supplemental-Needs Trust, which has received quite a bit of press coverage as of late. This office receives inquiries weekly about this excellent device for those interested in Medicaid planning.

Background

In 1993, Congress authorized the funding of a Special Needs or Supplemental Needs Trust for the benefit of a certified-disabled individual under the age of 65 years old. Such funding may emanate from the individual herself or from a third party. The theory behind such legislation was that a disabled individual would be more likely to seek a legal remedy (and damages) for an injury sustained if that individual was confident that a recovery from the suit could be kept by him and not used to pay back benefits paid by Medicaid. In addition, he could be confident that, as a beneficiary of that trust, there would be no interruption in public benefits once that recovery was received.

Types of Special Needs or Supplemental Needs Trusts (SNT’s)

Basically, there are two types of this trust: self-settled and third party SNT’s. In the self-settled type, the assets used to fund the trust come from the disabled person. For example, I represented the Anderson family some years ago. Ellen Anderson was developmentally disabled. While she was a passenger in an automobile accident, she was seriously injured. She recovered $500,000.00, as a result of her lawsuit. If she had accepted the proceeds of the lawsuit outright, she would not only have lost her Medicaid benefits prospectively, but she might have received a bill for Medicaid benefits paid for her health care in the past.

By creating an SNT, and funding it with the proceeds of that personal injury settlement, she was able to keep her ongoing Medicaid coverage and reap the benefits of using those proceeds for her supplemental needs. That changed Ellen’s entire life. She was finally able to afford the things she had always wanted but could never afford, and was able to maintain her public benefits. The one caveat was that a pay-back provision had to be included in the body of the trust document so that, when Ellen dies, Medicaid would then be able to seek reimbursement for benefits paid to her during the lifetime of the SNT.

A third party SNT works in the same general way, except the trust assets are funded by someone not legally responsible for the beneficiary. Accordingly, there is no pay-back requirement. The grantor can even designate that, after the beneficiary has died, the remainder in the trust passes to any contingent beneficiary he would like, without reimbursement to Medicaid. The grantor of a third party SNT can transfer assets to a beneficiary during the grantor’s life or as part of an overall testamentary plan. In other words, the grantor can include an SNT provision in her will.

This is a wonderful solution to the difficulty that many parents of disabled children have. It allows them to remember all of their children, equally, in their estate plans, but not cause an interruption in the ongoing public benefits being received by the disabled child. It is also a wonderful solution to the dilemma of the ailing parent of a disabled child who must also seek Medicaid for the parent, himself. The parent can transfer assets to a disabled child and also become Medicaid eligible, under certain circumstances. The SNT is a marvelous planning tool and should be used whenever and wherever possible.

The above list is for general information purposes only. It is not intended to constitute individual legal advice or a specific recommendation to any particular client.

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This publication is intended for general information purposes only. It is not intended to constitute individual legal advice to any specific client.  To unsubscribe or change your email address, please contact Linda L. Kordes at linda@kordeslaw.com.