When to Use a Supplemental or Special Needs Trust

I find that most clients have some familiarity with the concept of estate plans, probate, guardianships and many of the other things we do at my law firm. However, one of our practice areas regularly puzzles people: Supplemental Needs Trusts. Let’s look at these unique trusts and see what they can do.

A Supplemental Needs Trust (also known as a “Special Needs Trust”) serves a very specific purpose: it helps recipients of certain public benefit programs remain eligible for those programs. Most often, the beneficiaries of Supplemental Needs Trusts are persons with disabilities. There are some public benefit programs for which a person can only qualify if his or her total available resources fall below a certain limit (often $2,000.00). For program eligibility purposes, “available resources” can include financial accounts, personal property or real property. Typical examples of these “means-tested” public benefit programs include Medicaid and Supplemental Security Income (“SSI”).

Because programs like Medicaid and SSI require that their participants maintain a very low level of available resources, it is very problematic when a participant suddenly receives additional available resources. This typically happens in two types of scenarios, so let’s look at examples of each.

Imagine that Jane Doe has a disability and therefore receives public benefits so long as her available assets remain below a total value of $2,000.00. Now imagine that Jane’s loving grandfather indicates in his Last Will and Testament that Jane is to receive his most prized possession, a small collection of fine paintings he has spent years admiring with Jane often by his side enjoying them with him. Finally, imagine that the painting collection is valued at $25,000.00. Upon her grandfather’s death, Jane will receive this thoughtful and generous gift, but it will almost certainly make her ineligible to continue receiving her typical program benefits. If, like many in her situation, Jane relies on those benefits for her housing, medical care, food, utilities, etc., she will quickly find that it is not possible to pay for such things with beautiful artwork, and converting an asset like fine paintings into cash takes time and skills that Jane does not likely have.

A Supplemental Needs Trust can be established that would allow friends and family members to give gifts for the benefit of someone like Jane without inadvertently causing Jane to become ineligible for the public benefits program upon which she relies. This is how Supplemental Needs Trusts can help people with disabilities.

Now for our second scenario, imagine that John Doe is in an automobile accident in which a drunk driver has crashed into John. His injuries from the accident cause John to become disabled and he has to use certain public benefit programs to obtain housing, medical care, food, etc., from that point on. Now imagine that the drunk driver’s insurance company pays John $50,000.00 as a settlement to keep the matter from going to trial. As you can guess by now, receipt of those funds can make John ineligible for the public benefit programs he otherwise could use. Just like Jane in the prior example, John may lose those benefits at no fault of his own.

Just like Jane, John can utilize a Supplemental Needs Trust to remain eligible for his benefit programs and the settlement funds he receives can be placed in that trust to provide for him those things that cannot be provided by the public benefits programs.

Supplemental Needs Trusts are very useful, but they are also very complex. Both state and federal laws and administrative rules govern very specific requirements that these trusts must meet to be effective, and those laws can change without you knowing.

If you or someone you know or love might benefit from a Supplemental Needs Trust, talk to a good estate planning attorney.

My law firm is currently offering free telephonic, electronic, or in-person consultations concerning creating or reviewing estate planning documents.

Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Robert at 208-765-6555, Robert@KootenaiLaw.com, or visit www.KootenaiLaw.com.

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.