If you have a child or other family member with a disabling condition that requires long-term care or prevents (or will prevent) him or her from being able to support him- or herself, consider establishing a special needs trust (SNT). Also known as a supplemental needs trust, an SNT allows you to enhance a family member’s quality of life without jeopardizing his or her eligibility for government benefits, such as Medicaid or Supplemental Security Income (SSI).
An SNT is an irrevocable trust designed to supplement, rather than replace, government assistance. Generally, the trust is funded by someone other than the beneficiary, though in certain instances a beneficiary’s assets may be used to fund the trust.
To preserve eligibility for government benefits, the beneficiary can’t have access to the funds, and the trust must be prohibited from providing for the beneficiary’s “support.” That means it can’t be used to pay for medical care, food, clothing, shelter or anything else covered by Medicaid or SSI, such as the basic medical care provided by those programs.
But an SNT can be used to pay for virtually anything government benefits don’t cover, such as unreimbursed medical expenses, education and training, transportation (including wheelchair-accessible vehicles), insurance, computers, and modifications to the beneficiary’s home. It can also pay for “quality-of-life” needs, such as travel, entertainment, recreation and hobbies.
Careful drafting required
To ensure that an SNT doesn’t disqualify the beneficiary from government benefits, it should prohibit distributions directly to the beneficiary and prohibit the trustee from paying for any support items covered by Medicaid or SSI. Some SNTs specify the types of supplemental expenses the trust should pay; others give the trustee sole discretion over nonsupport items.
Like many trusts, most SNTs contain spendthrift language to protect the trust assets against creditors’ claims. Also, a best practice is to include specific language providing that the trust is an SNT, that the funds are intended for only nonsupport purposes and that your intention is to preserve the beneficiary’s eligibility for government benefits.
Communication is key
If you establish an SNT, communicate your plans to everyone concerned. Otherwise, well-meaning relatives or friends might inadvertently undermine your strategy by making gifts or bequests directly to the special needs person. Contact us with questions regarding an SNT.
Please contact my office at firstname.lastname@example.org or 530-802-0640 if you would like us to help set-up a Special Needs Trust as part of your estate plan.
Virginia Ryan provides business law and estate planning services to clients in Northern California, including Auburn, Grass Valley, Nevada City and Truckee.