Supplemental Needs Trusts and Proposed New Law

October 2, 2015

This edition of the Koldin Report E-Newsletter reviews the use of Supplemental Needs Trusts for individuals with disabilities.


The previous newsletters can be found on our website by clicking here.

Parents of children with disabilities are often frustrated because they are unable to provide for their children after death because the children would lose eligibility for benefits.

Current Law Regarding Supplemental Needs Trusts

Federal and State legislation expressly exempts Supplemental Needs Trusts (Special Needs Trusts) from being considered available in determining eligibility for Medicaid provided that the statutory requirements are met.

A Supplemental Needs Trust provides that income and principal may be made available to the person with disabilities but only to supplement and not to replace government benefits.

Types of Supplemental Needs Trusts

There are 2 main types of Supplemental Needs Trusts:

(1) "Living Trust" which is created now while you are alive and takes effect immediately:

(A) "First Party" Supplemental Needs Trust:
funded by assets owned by a person with disabilities.

(B) "Third Party" Supplemental Needs Trust:
funded by assets owned by someone else who is making gifts to the Trust for the benefit of the person with disabilities.

(2) "Testamentary Trust" which is created as part of the beneficiary clause of your Living Trust or your Last Will and Testament. The Trust for the benefit of the person with disabilities does not take effect until after your death.

LIVING SUPPLEMENTAL NEEDS TRUST

"FIRST PARTY" SUPPLEMENTAL NEEDS TRUST
FOR ASSETS OWNED BY A PERSON WITH DISABILITIES

Assets owned by a person with disabilities are transferred to a Supplemental Needs Trust so that eligibility for Medicaid and/or other government benefits programs can be established.

  • Under Age 65
  • Payback Provision
  • Establish by Parent, Grandparent, Guardian, Court
  • No Medicaid Transfer Penalty
  • Not Counted as Available Asset for Medicaid
  • Used in Personal Injury Cases


****Note: There is legislation currently pending in Congress called the "SNT Fairness Act" to allow a person with disabilities to establish his/her own First Party Supplemental Needs Trust rather than needing a Parent, Grandparent, Guardian, or Court to create it.

No Transfer Penalty
Currently there is a 5 year "Lookback" by Medicaid for non-exempt transfers. The Federal and New York Social Services Law provides that there shall not be a transfer penalty for assets transferred to a trust established solely for the benefit of an individual who is under age 65 and is disabled.

Not an Available Resource/Payback Provision
The Federal and New York Social Services Law also provides that the following trust shall not be considered an available resource in determining Medicaid eligibility: "a trust containing the assets of a disabled individual which was established for the benefit of the disabled individual while such individual was under sixty-five years of age by a parent, grandparent, legal guardian, or court of competent jurisdiction, if upon the death of such individual the state will receive all amounts remaining in the trust up to the total value of all medical assistance paid on behalf of such individual."

Personal Injury Lien
An example of when such a trust is often used is in a personal injury case where the settlement proceeds are transferred to a Supplemental Needs Trust established by the Court. However, Medicaid has a lien on the personal injury settlement before the Supplemental Needs Trust can be funded. Therefore, prompt settlements can be an advantage.

"THIRD PARTY" SUPPLEMENTAL NEEDS TRUST



FOR ASSETS OWNED BY SOMEONE ELSE WHO IS MAKING GIFTS TO THE TRUST FOR THE BENEFIT OF THE PERSON WITH DISABILITIES

This type of Trust allows family members to make gifts to a person with disabilities without causing him/her to lose government benefits.

-- Not Counted as Available Asset for Medicaid

--Trust Can Be Named Beneficiary of Life Insurance, Retirement Accounts, Financial Institution Accounts, Last Will and Testament, Living Trust, etc.

-- No Medicaid Payback Provision

TESTAMENTARY SUPPLEMENTAL NEEDS TRUST



As part of Estate Planning, parents (or grandparents) can provide for their children with disabilities by establishing a Supplemental Needs Trust as part of the beneficiary provisions of their Last Wills and Testaments or as a beneficiary provision of their own Living Revocable or Irrevocable Trusts. The Trust for the benefit of the person with disabilities does not take effect until after your death.

-- Not Counted as Available Asset for Medicaid

-- No Medicaid Payback Provision

The Koldin Law Center, P.C. is available to review your options regarding establishing a Supplemental Needs Trust. We have been retained by many personal injury attorneys to prepare Supplemental Needs Trusts for their clients. At the Koldin Law Center, P.C. with offices in Syracuse , New York, we have over 40 years of experience helping individuals plan for immediate crisis and long term care. You should never assume that it is too late. Quite often you have legal options to save some or all of your life savings. The Koldin Law Center, P.C. can help you make the right decisions when you have a health care crisis. Contact us for a free consultation.

There is something you can do.