If your child relies on Medicaid services, how can you ensure that when you die the money you leave them doesn’t cause them to lose that vital support system? A Supplemental Needs Trust could be the answer.
By: Jedediah McClure, JD
Key Points
- Supplemental Needs Trust (SNT): Designed to protect a disabled beneficiary’s eligibility for means-tested government benefits while providing for their additional needs.
- Trustee Responsibilities: The trustee manages the trust, ensuring compliance with regulations and proper distribution of funds.
- Legal and Financial Protection: An SNT shelters funds from creditors and misuse, ensuring they are used for the beneficiary’s benefit.
Important Definitions
- Supplemental Needs Trust (SNT): A trust designed to provide for the extra needs of a disabled beneficiary without disqualifying them from means-tested government benefits.
- Means-Tested Benefits: Government benefits that are based on the recipient’s income and resources, such as Medicaid and Supplemental Security Income (SSI).
- Trustee: The person or institution responsible for managing the trust according to the terms set by the grantor.
Addressing a Common Estate-Planning Challenge
Many families face the challenge of planning for a disabled child’s future, particularly when the child relies on means-tested government benefits. My friend David recently retired and faced this exact situation with his son, Connor, who has health and cognitive issues. Connor works part-time in a controlled environment and lives in a supported shared residence. He relies heavily on his parents for almost everything, from daily needs to social interactions.
Without the environment and support system his parents have built, Connor’s world would collapse. This is a common scenario for many families caring for an adult child whose quality of life depends on a consistent support system. Fortunately, there is a solution to ensure these children remain supported without jeopardizing their eligibility for crucial benefits.
The Solution: Supplemental Needs Trust
David found the answer in a Supplemental Needs Trust (SNT). This federally approved strategy allows parents to leave an inheritance to their disabled child without disqualifying them from means-tested benefits such as Medicaid, Supplemental Security Income (SSI), and other essential services.
An SNT can be funded with varying amounts, from tens of thousands to several million dollars, and can even include a personal residence. The key is to ensure that the trust meets specific legal requirements to protect the beneficiary’s eligibility for benefits.
Setting Up the Trust
To qualify, an SNT must:
- Serve just one beneficiary for life.
- Include specific terms and legal references.
- Provide certain trust powers and limitations.
- Balance the loss of eligibility against the benefit of each non-supplemental distribution.
An SNT can cover non-covered medical care, private rehabilitation, supplementary education, entertainment, transportation, personal property, and personal services. The trustee can hire third-party administrators to manage daily support, care, treatment, therapy, and other needs.
Connor, for instance, receives Disabled Adult Child benefits and Medicare based on David’s work record, which are not means-tested. However, the SNT ensures that the means-tested benefits Connor relies on remain unaffected.
Naming a Trustee
Given the complexity of the regulations, David named a trust company as the trustee for Connor’s SNT to ensure proper administration. The rules governing trust distributions are strict, and structuring a successful SNT requires experienced legal counsel knowledgeable in state and federal program laws.
A qualified trustee must navigate public assistance programs, understand the interaction between the trust’s terms and program regulations, and determine how and when to make distributions in the beneficiary’s best interest.
Additional Information
- Regular Reviews: Regularly review the terms of the trust to ensure they continue to meet the beneficiary’s needs and comply with current laws.
- Tax Implications: Understand the tax implications of creating and maintaining an SNT. Consult with a tax advisor to navigate potential tax liabilities.
- Communication: Clearly communicate the existence and purpose of the trust to relevant parties to avoid misunderstandings and disputes.
Frequently Asked Questions (FAQs)
Q: What is a Supplemental Needs Trust (SNT)?
A: An SNT is a type of trust designed to provide for the extra needs of a disabled beneficiary without disqualifying them from means-tested government benefits.
Q: Who can be a trustee of an SNT?
A: You can appoint a professional firm, bank, or trusted individual to be the trustee. It’s crucial to choose someone who can handle the responsibilities and navigate the complex regulations.
Q: How does an SNT protect eligibility for benefits?
A: An SNT shelters the funds from being counted as part of the beneficiary’s assets, thus preserving their eligibility for means-tested benefits like Medicaid and SSI.
Q: Can the terms of the SNT be changed?
A: The terms of an SNT are generally irrevocable, but they can be drafted with some flexibility. Any changes must comply with legal requirements and may require court approval.
Q: What happens if the trustee and beneficiary have conflicts?
A: Conflicts can arise. It’s important to choose a trustee who can maintain a good relationship with the beneficiary or consider appointing a neutral professional trustee.
Q: Are there any tax implications for an SNT?
A: Yes, there can be tax implications for both the trust and the beneficiary. It’s essential to consult with a tax advisor to understand the potential tax liabilities and ensure compliance with tax laws.
Take Action Now
If you need assistance with creating a Supplemental Needs Trust or have questions about planning for a disabled child’s future, contact me today. At Supernus Law, we specialize in creating comprehensive estate plans tailored to your unique needs. Schedule a consultation with me, Jedediah McClure, to discuss your estate and ensure your plans provide the support and protection your loved ones need.
Contact Information:
- Phone: (618) 354-0302
- Email: jed@supernuslaw.com
- Website: Supernus Law Website
Don’t let the fear of losing essential benefits prevent you from securing your child’s future. Let’s work together to protect your assets and provide peace of mind for you and your family.
DISCLAIMER
This post is for informational purposes only and is not intended as legal advice. Please do not act or refrain from acting based on anything you read on this site. You should always seek competent legal counsel before taking any legal action. Using this site or communicating with the Supernus Business & Law Center, LLC through this site does not form an attorney/client relationship.
