Special Needs Trusts

The A, B, C’s and 1, 2, 3’s of S N T’s
(Special Needs Trusts)

Special Needs Trusts (SNT’s) come in several varieties. The primary purpose of all SNT’s is to hold assets for a beneficiary while exempting the contents of the SNT for programs like Medicaid, Supplemental Security Income (SSI), food assistance and some other public benefits. There are d4A, d4B and d4C Special Needs Trusts and there are 1st Party SNT’s and 3rd Party SNT’s…so we only left out the “2.”

1. The first category of SNT’s consists of assets of the beneficiary (from lifetime earnings, an inheritance, gift or personal injury award). These are “1st party SNT’s.” These are commonly called “self-settled” SNT’s. They are addressed in the Federal Law at 42 U.S.C. 1396 p (d)(4)(A), (B) and (C). These trusts are required to have a Medicaid payback when the beneficiary dies.

2. The second category of SNT’s are Trusts established by a spouse, for the benefit of his or her spouse, within a will and therefore only upon death. These are called Qualifying SNT’s. Generally a spouse cannot set up such a trust for his or her spouse, but there is an exception is made if the SNT is done within a Last Will and Testament. Therefore, the spouse must die to be able to fund one.

3. The third category of SNT’s consists of assets of others (not the beneficiary or his or her spouse) set aside for a disabled person, either during life or upon death of the person setting up the Trust. These are called “3rd party” SNT’s. These trusts are very common in the estate plans of parents and grandparents where there is a child or grandchild with a disability. The funds can be held for the individual with a disability without jeopardizing public benefits.

Special Needs Trusts can help individuals with a disability of any age. SNT’s can help them qualify for programs to assist with medical and long term care expenses as well as possibly get a monthly income stream from Social Security, even when the individual may have never worked. If know someone with medical bills that are out of control and has little or insufficient medical coverage you should think of a SNT. If you know someone who faces long term care, either in an institutional setting or out in the community, you should think of a SNT.

SNT’s are tools. They will work well for some individuals with a disability and possibly not for others. An Elder Law Attorney or Special Needs Lawyer can consider all of the tools and determine whether a SNT should be part of the solution to protect resources and to supplement public assistance programs.

Here is your cheat-sheet on the types of SNT’s.

FIRST PARTY

SNT with beneficiary’s funds – under 42 U.S.C. 1396 p (d)(4)(A), (B) and (C)
d4A – Under age 65, Medicaid payback, works for SSI and Medicaid, works for income and assets
d4B – Qualified Income Trust, only income deposited, only works for some Medicaid programs, not SSI
d4C – Pooled Trust, works for all ages for Medicaid but under age 65 for SSI, works for income and assets

THIRD PARTY

SNT with the funds of others
Spouse can set up a trust under their will (must die), no Medicaid payback
Anybody other than the beneficiary or spouse can set up a stand-alone SNT, establish one upon death in a will or in a trust or participate in an existing SNT. No Medicaid payback upon the death of the primary beneficiary, can go to others.

Authored by Travis Finchum
Reviewed by Jill Burzynski