Dear Client,

Happy Spring to you. The summer awaits and new life begins in another new season. As an avid cyclist I look forward to another year of bicycling. May you enjoy your favorite activities outside when the weather allows.

This quarter we are discussing two types of trusts often used for people seeking to shield assets from governmental attachment if a person is disabled. The first is the special needs trust that allows for funds to be held by an irrevocable trust for the individual who would otherwise need to use assets owned by the beneficiary. The second trust, named the supplemental needs trust, protects a assets for an individual from a third party so that if receiving government assistance, the individual will not lose such assets for any repayment of such assistance.

1. Special Needs Trust

a. Purpose- The purpose of a Special Needs Trust is to allow a disabled individual to shield funds otherwise owned by the individual from counting toward qualification for medical assistance.

b. Parties- As with all trusts, the Special Needs Trust requires a grantor, a trustee, and a beneficiary. The grantor is generally the individual with a disability, but such trust could be established by a parent or the court.

c. Trustee – The trustee cannot be the same individual as the beneficiary, but could be a parent, sibling or other family member.

d. Beneficiary- The beneficiary is a disabled individual under age 65 who qualifies for medical assistance. Upon attaining age 65, the beneficiary must continue to be the sole beneficiary even though medical assistance will cease because the individual will now be covered by Medicare.
e. Distributions- Disbursements from the SNT by the trustee must be for the sole benefit of the beneficiary and cannot benefit the spouse, children, or other family members of the beneficiary. While this sounds strict, it does have some leeway. For example, if a family member needs to take the beneficiary somewhere overnight, the hotel can be paid for with trust funds and the family member could stay in the same room, as that person is acting on behalf of the beneficiary.
f. MA Recovery Clause- The SNT must contain a clause that at the death of the beneficiary, remaining funds will be used to reimburse the Medical Assistance program. Any funds after such reimbursement may be left to a contingent beneficiary.
g. Verification of the SNT- A qualified attorney can draft the trust document and if further verification is required, the Department of Human Services in Minnesota will review and approve the document. An annual filing is generally required after such verification.

2. Supplemental Needs Trust

a. Purpose – The purpose of a Supplemental Needs Trust differs from the Special Needs Trust because it is funded by a third party, such as a parent or other family member, but not the spouse. The reason for the difference between the two trusts centers around the source of the property used to fund the trust. If the beneficiary funds the trust with property otherwise owned by the beneficiary, tax treatment is different than if property from a third party is used.

b. Other Differences- The Supplemental Needs Trust need not contain a payback provision for the funds and may have a contingent beneficiary to receive benefits after the disabled beneficiary’s death.

In addition, the trust must have a provision that does not allow the trustee to make a distribution to reduce medical assistance benefits. Generally, this is not a hardship for the beneficiary or the trust.

If you are interested in other articles previously distributed on the estate planning topic, check out my newsletter.

Thank you for your attention to this article. As always, if you have questions feel free to contact me. And if you or someone you know has a need for further estate planning, I would appreciate the opportunity to work with either you or your referral.

Regards, Scott A. Becker, Esq.