Supplemental Needs Trusts for individuals with disabilities–“First Party SNT”
January 6, 2014
This edition of the Koldin Report E-Newsletter begins a series of newsletters on the use of Supplemental Needs Trusts for individuals with disabilities. In the previous issue we reviewed a recent U.S. Supreme Court decision regarding the right of the Medicaid Agency to receive a portion of a personal injury award for reimbursement of expenses it paid out towards the cost of care of the injured person. We also explained that any funds not recovered by the Medicaid Agency could be placed in a Supplemental Needs Trust. All past issues are saved on our website can be found by clicking here.
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. Federal and State legislation expressly exempts Supplemental Needs Trusts (Special Needs Trusts) from being considered available in determining eligibility for Medicaid or other government benefits provided that the Trust contains important language required by the law. FIRST PARTY SUPPLEMENTAL NEEDS TRUST The life savings and certain income of a person with disabilities can be transferred to a Supplemental Needs Trust for his/her benefit if he/she is under age 65. He/she could then qualify for immediate Medicaid coverage or other government benefits. There is no Medicaid transfer penalty period of ineligibility. When the assets of the person with disabilities are used to fund the Trust, it is commonly known as a “First Party Supplemental Needs Trust.” When a Supplemental Needs Trust is funded with the assets of a person with disabilities, the Medicaid Agency must be designated as the primary remainder beneficiary to be reimbursed for any benefits paid on behalf of the person with disabilities. This is commonly known as a “Payback Provision.”
A second remainder beneficiary can be named to receive any balance left in the Trust. Although this type of Supplemental Needs Trust is funded with the assets owned by a person with disabilities, the law requires that the Trust be created by a parent, grandparent, guardian or Court. The person with disabilities cannot create his/her own Trust. In order to avoid more expensive Guardianship or Court proceedings, it may be advisable for a person with disabilities to establish such a Trust while he/she has a living parent or grandparent even if the Trust will not be fully funded until a later time. There is proposed legislation to allow a person with disabilities to establish his/her own Supplemental Needs Trust without the need to have it created by a parent, grandparent, guardian or Court.
This type of Trust can be very valuable in a personal injury situation. The injured person is no longer required to deplete personal injury settlements on the cost of care. A Supplemental Needs Trust can protect the settlement so he/she can qualify immediately for Medicaid. In addition, this type of Trust is useful in a situation where a person with disabilities directly inherits assets in his/her name that could cause him/her to lose governmental benefits. This type of Trust can also be used when the person with disabilities is not spending all of his/her income and is accumulating savings above the level allowed by Medicaid, SSI or other government benefits. With a properly designed Supplemental Needs Trust, the quality of life for a person with disabilities can be greatly enhanced.
The next issue of the Koldin Report E-Newsletter will review how others can set up a Supplemental Needs Trust for the benefit of a person with disabilities so they can make gifts to that person. This is commonly known as a “Third Party Supplemental Needs Trust.” 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. We are available to handle the entire Medicaid application process to successfully obtain Medicaid coverage for the person with disabilities.