Planning For Families With Disabled Loved Ones

By: Anthony J. Enea, Esq.

Introduction

A Supplemental Needs Trust or a Special Needs Trust (hereinafter "SNT's") are the terms most often utilized to describe trusts that are established for the disabled to supplement benefits not provided through government programs.
SNT's can be either created inter-vivos (during one's lifetime) or be testamentary trusts created at the time of one's death and be part of a Last Will. SNT's can either be self settled (created by the disabled party) with his or her assets or third party trusts (created by others for the benefit of the disabled party).

I. THIRD PARTY SUPPLEMENTAL NEEDS TRUSTS

In July 1993 the New York State Legislature enacted a statute to encourage third parties to establish SNT's for their disabled loved ones. Any person may establish a third party testamentary SNT for the benefit of a disabled person.

For inter-vivos third party SNT's, the creator can be a person or entity other than the beneficiary's spouse or a person with a legal obligation to support the beneficiary. Although parents have a legal obligation to support their children, the prohibition against parents funding a third party SNT while the child is a minor (under 18 years of age) is not applicable to children who are not receiving any government benefits. Parents of children in wavered Medicaid Programs can create a SNT.

None of the income or principal of the Third Party SNT is to be used in such a manner as to supplant, impair or diminish benefits or assistance of any Federal, State, County, City or other governmental entity for which the beneficiaries may otherwise be eligible or which the beneficiaries may be receiving. The purpose of the trust is to supplement not supplant the government benefits.

Third Party SNT's are not to be used for day to day living expense of the beneficiaries covered by government benefits, but, for supplemental or special needs. For example: transportation, vocational training, insurance coverage, computers, specially equipped vans, personal case givers, vacations, a home, and any luxury or need including health care not provided through government entitlements or private insurance. However, provisions can be made in the trust to provide for day to day needs.

Third Party SNT's are not subject to any claim or lien upon the death of the Medicaid recipient. No payback upon death.

The Grantor of Third Party SNT may provide for the disabled and then designate remainderman to whom remaining trust assets will pass upon the death of the disabled beneficiary.

Third Party SNT's can provide for its termination prior to the death of the beneficiaries. For example: trust can provide that it terminates if a beneficiary is substantially gainfully employed for a continuous period of 2 years or otherwise loses eligibility for government entitlements.

II. SELF SETTLED SNT's

A self settled SNT is a trust established by the disabled person, his or her parents, grandparents, legal guardians or through court order with the assets of the disabled individual. For example: assets recovered through a personal injury suit.

If the disabled individual is under 65 years of age the assets used to fund the SNT will not be considered available resources for purposes of eligibility for Medicaid or SSI and the transfer of said assets to the SNT will not create any periods of ineligibility for Medicaid or SSI. Irrespective of whether the disabled party is age 65 or younger a self settled SNT must state that upon the death of the disabled party, 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. Thus, the trust must contain what are often referred to as "Payback Provisions"

III. CONCLUSION

SNT's present an important planning option for the disabled. SNT's remain a viable option for providing comforts and luxuries to the disabled, and in many cases even the necessities needed by a disabled party. Families of the disabled should consider use of the SNT as a integral part of their estate planning.