Supplemental Needs Trust
From our series on trusts originally published in the Dominion Post, Senior Post
Last month in our series on trusts, we discussed irrevocable trusts that protect assets from the cost of long-term care. This month, we continue our series with a trust that provides a different type of benefit. A Supplemental Needs Trust (“SNT”) is designed to provide certain benefits to an individual with a disability beyond the essential needs-based government benefits that an individual may otherwise qualify for.
These trusts are useful because while a differently-abled person may qualify for some basic income and medical care through SSI and Medicaid, those benefits are not meant to provide for all of their needs. As a result, a primary concern of parents of children who are differently-abled is how to provide for the future needs of their child knowing that the child is likely to outlive the parents.
When managed properly, these SNTs protect essential benefits. An SNT is intended to supplement what government benefits do not cover. For instance, SSI covers “food and shelter” expenses, so SNT funds should not be used for a monthly mortgage payment, the electric bill, or grocery bill; however, an SNT could pay for clothing, cable, furnishings, certain medical expenses, or tuition under current laws. Many families are relieved that SNTs allow them to improve their differently-abled loved ones’ standard of living without a benefit disruption.
We refer to an SNT by who actually created it. If a person other than the differently-abled person creates it, we refer to the SNT as a third-party SNT. While if the person creates it for themselves, it is referred to as a self-settled SNT. Regardless, the goal of the SNT is the same – to preserve essential needs-based benefits for the beneficiary.
A third-party SNT is usually created by a parent or grandparent, but there is no requirement for it to be created by a relative. Once the trust is created, anybody may contribute to it. In addition, they may even name the SNT as an heir in their will or trust. This option has a much better outcome than directly naming the differently-abled person as an heir because it prevents the inheritance from disrupting government assistance. In addition, if the trust still has funds upon the death of the primary beneficiary, an alternate beneficiary may be named.
Self-settled SNTs are created from the assets of a differently-abled person. Most of the time, this occurs when a person with a disability receives a settlement from a lawsuit. The trust receives the settlement so that the individual remains eligible for their benefits. The trust functions similar to the third-party SNT during the lifetime of the beneficiary, but after their death, there is a payback provision meaning the state will be reimbursed for benefits paid during the lifetime of the beneficiary before an alternate beneficiary can receive the balance.
Even if your potential heirs are currently healthy, it is good practice to include standby provisions for an SNT in your estate planning documents. If needed, standby provisions can prove invaluable to protect your loved one’s inheritance in the event of a tragedy.
Whether you receive SSI, have a differently-abled child, or just want solid protections in place, be sure to consult an estate planning attorney to determine if a SNT may be the right fit for your family. Next month, we will talk about retirement trusts and how your planning might be affected by potential upcoming changes in the law.