Wednesday, February 22, 2012
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What is a Special Needs Trust?

A Special Needs Trust (SNT) is a nifty device which allows money to be set aside for the use of a Medicaid recipient, without disqualifying them from benefits. Assets which are held in a properly drafted Special Needs Trust are not a “countable asset” for Medicaid purposes. Special Needs Trusts are sometimes called Supplemental Needs Trusts, or Medicaid Qualifying Asset Trusts.

There are two different kinds of SNT. The first is called a Self-Settled SNT, and is also sometimes called a First Party SNT, or a (d)(4)(A) Trust (after 42 US Code 1396p(d)(4)(A), the section of federal law which authorizes this). The other is called a Third Party SNT. In both cases, there must be a separate trustee (in other words, somebody other than the Medicaid recipient must control the trust), and the assets in the trust may not be used to provide for basic necessities for the recipient. They can only be used for “extras”, not for basics. The legal theory is that the person’s basic necessities should be provided by the benefits they receive outside of the SNT. 

(We apologize, by the way, for all of the different alternative names. Unfortunately, different attorneys use different names for the same type of device. This can be frustrating for laypeople who are trying to figure this all out).

So for instance, an SNT cannot pay for regular, day-to-day clothing, or for groceries, or regular toiletries. But it can pay for things like spa or beauty treatments, electronic gadgets, vacation trips, restaurant meals for special occasions, and other things which will make the person’s life a little bit easier. A house or other residence can be placed into an SNT for the person to live in, although that will result in a small reduction in their benefits. The Special Needs Trust must be for the sole benefit of the Medicaid recipient, not for anyone else.

 
Two types of SNT

A Self-Settled SNT can hold assets which actually belong to the Medicaid recipient. However the trust cannot be established, nor can anything new be put into it, unless the Medicaid recipient is under age 65. If there is already a trust established and fully funded before the recipient turned 65, the assets can still be used, but nothing new can be added to the trust. The biggest disadvantage to a Self-Settled SNT, is that when the Medicaid recipient dies, if there is anything left in the trust, Medicaid gets paid back before anyone else gets anything.


A Third Party Special Needs Trust does not have to pay Medicaid back. When the Medicaid recipient dies, anything left in the trust goes to whoever the person who created the trust designated. So for instance, suppose that a parent has three children, one of whom is severely disabled and requires Medicaid. In the estate planning documents, the parent could create a Third Party SNT for the benefit of the disabled child, and have some of their assets put into it on the parent’s death. The terms of the SNT would be that the assets are to be used to provide for the special needs of the disabled child, but if there is anything left when the disabled child dies, it goes to the other children. This is a significant advantage to a Third Party Special Needs Trust over a Self-Settled SNT. On top of that, a Third Party SNT can be established and funded after the Medicaid recipient turned 65.


So given the choice, a Third Party SNT is always better than a Self-Settled SNT. So why would anyone choose the Self-Settled SNT? Usually because they have no choice. If the Medicaid recipient owns the assets, or even has the legal right to the assets, those assets can only be put into a Self-Settled Special Needs Trust, not a Third Party SNT. For example, assume that a deceased parent who has a disabled child who needs Medicaid, simply left a will which gave some of the assets to that child. Even if the assets are still in probate, the disabled child has a legal right to them, so it is too late to establish a Third Party SNT. Assuming the child is under 65, he or she can still set up a Self-Settled SNT, but the chance to pass any remainder on to other heirs after the disabled child dies, has been lost.

 
How to Acquire a SNT

Attorney Kenneth Kirk handles both kinds of Special Needs Trusts. On the estate planning side of the practice, he often includes provisions for a Third Party SNT when a client has a disabled heir who may need Medicaid. On the Medicaid planning side of the practice, he often establishes a Self-Settled SNT in order to help elderly or disabled clients qualify for Medicaid. If you think either of these types of Special Needs Trust may be helpful, and you live in Alaska or have a beneficiary who lives here, Mr. Kirk can provide a free consultation to help you sort it out. Please Contact us for more information.

 
© 2011 by Kenneth C. Kirk, Attorney. All rights reserved.
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