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Serving Philadelphia, Delaware County, Montgomery County, Bucks County and Chester County since 1996.
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Special Needs Trusts
Overview
Special needs trusts (also known as "supplemental needs" trusts) allow a disabled beneficiary to receive gifts,
lawsuit settlements, or other funds and yet not lose his or her eligibility for certain government programs.
Such trusts are drafted so that the funds will not be considered to belong to the beneficiary in determining his or her eligibility
for public benefits. Special needs trusts are designed not to provide basic support, but instead to pay for comforts
and luxuries that could not be paid for by public assistance funds.
These trusts typically pay for things like education, recreation, counseling, and medical attention beyond the simple
necessities of life.
Very often, special needs trusts are created by a parent or other family member for a disabled child (even though the child
may be an adult by the time the trust is created or funded).
Such trusts also may be set up in a Will as a way for an individual to leave assets to a disabled relative. In
addition, the disabled individual can often create the trust himself, depending on the program for which he or she seeks benefits.
These "self-settled" trusts are frequently established by individuals who become disabled as the result of an accident or
medical malpractice and later receive the proceeds of a personal injury award or settlement.
Each public benefits program has restrictions that the special needs trust must comply with in order not to jeopardize the
beneficiary’s continued eligibility for public benefits.
Both Medicaid and SSI are quite restrictive, making it complicated for a beneficiary to create a trust for his or her own benefit
and still retain eligibility for Medicaid benefits.
But both programs allow two "safe harbors" permitting the creation of special needs trusts with a beneficiary's own money
if the trust meets certain requirements.
Types of Special Needs Trusts
The first of these is called a "payback" or "(d)(4)(A)" trust, referring to the authorizing statute.
"Payback" trusts are created with the assets of a disabled individual under age 65 and are established by his or her parent,
grandparent or legal guardian or by a court.
They also must provide that at the beneficiary's death any remaining trust funds will first be used to reimburse the state
for Medicaid paid on the beneficiary's behalf.
There is no requirement that SSI benefits be repaid.
Medicaid and SSI law also permits "(d)(4)(C)" or "pooled trusts."
Such trusts pool the resources of many disabled beneficiaries, and those resources are managed by a non-profit association.
Unlike individual disability trusts, which may be created only for those under age 65, pooled trusts may be for beneficiaries
of any age and may be created by the beneficiary himself or herself.
In addition, at the beneficiary's death the state does not have to be repaid for its Medicaid expenses as long
as the funds are retained in the trust for the benefit of other disabled beneficiaries.
Income paid from a special needs trust to a beneficiary is another issue, particularly with regard to SSI benefits.
In the case of SSI, the trust beneficiary would lose a dollar of SSI benefits for every dollar paid to him directly.
In addition, payments by the trust to the beneficiary for food, clothing or housing are considered "in kind" income and, again,
the SSI benefit will be cut by one dollar for every dollar of value of such "in kind" income.
Some attorneys draft the trusts to limit the trustee's discretion to make such payments.
Others do not limit the trustee's discretion, but instead counsel the trustee on how the trust funds may be spent,
permitting more flexibility for unforeseen events or changes in circumstances in the future.
The difference has to do with philosophy, the situation of the client, and the amount of money in the trust.
Trustee Issues
Choosing a trustee is also an important issue in special needs trusts.
Most people do not have the expertise to manage such a complex trust.
An alternative is retaining the services of a professional trustee.
For those who may be uncomfortable with the idea of an outsider managing a loved one’s affairs, it is possible
to simultaneously appoint a trust "protector," who has the powers to review accounts and to hire and fire trustees,
and a trust "advisor," who instructs the trustee on the beneficiary’s needs.
However, if the trust fund is small, a professional trustee may not be interested.
This can be an argument for pooled trusts.
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Call Us: (610) 446-9626
Fax Us: (610) 446-9985 |
Visit our offices:
17 Mifflin Ave. Suite 202
Havertown, PA 19083 |
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