Beyond The Will

Special Needs Planning

September 3, 2020


Navigating governmental entitlement programs in Massachusetts can be confusing and overwhelming.  In order to receive government assistance such as Medicaid (MassHealth) or Supplemental Security Income (SSI), income and asset limitations are imposed on a disabled individual.  So how can a family member ensure that a loved one is fully provided for while receiving governmental benefits?  One way is through the creation of a supplemental needs trust (also known as a special needs trust or SNT).

The purpose of an SNT is to supplement governmental benefits received by a disabled beneficiary without disrupting the beneficiary’s eligibility to receive such benefits.  Assets in an SNT may be used, for example, for medical equipment and medical care not otherwise provided, medications, insurance premiums, therapists, expenses related to owning and operating a car, entertainment, clothing, vacations, appliances, and household furnishings in addition to other supplemental items.

There are two primary types of SNTs, self-settled SNTs, and third-party SNTs.  A self-settled SNT may be created by the disabled individual and can hold assets originally owned by the individual.  A self-settled SNT may be useful where a disabled individual inherits money or becomes entitled to a court settlement.  In order to create a self-settled SNT, the beneficiary must be under 65 years of age when the SNT is created and funded.

A third-party SNT may be created for the benefit of a disabled individual and is often utilized as a tool for a parent to provide financial support for a disabled child.  Third-party SNTs may be created through a will, living trust, or as a separate stand-alone document. When an SNT is created through a will or living trust, it is not funded until the death of the individual creating the trust.  Thus, if, for example, a parent wishes to provide for a disabled child immediately, it may be beneficial to create and fund a separate third-party SNT.

One important distinction between a self-settled SNT and a third-party SNT is that on the death of a beneficiary of a self-settled SNT, any remaining trust assets must be used to reimburse the state for Medicaid benefits received by the beneficiary. A third-party SNT however, may designate successor beneficiaries.  Thus, a third-party SNT provides an opportunity for the donor of the trust to ensure that on the death of the disabled beneficiary any remaining trust assets are distributed in furtherance of the donor’s estate plan.

In order to ensure that an SNT will not compromise a beneficiary’s access to governmental assistance, certain requirements must be followed.  For example, the disabled beneficiary may not serve as a trustee and may not have any access to trust assets.  In addition, the intent of the trust must be to supplement but not supplant entitlements the beneficiary is already receiving.  Further, the trust may not be drafted in a manner such that the trustee has any explicit or implied obligation to the beneficiary but rather all payments must be at the discretion of the trustee.

SNTs are widely utilized structures for providing supplemental resources to disabled beneficiaries. Structuring and administering a Special Needs Trust can be complicated and confusing.  It is important to engage an experienced attorney to assist you with this process.

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