Supplemental Needs Trust

By Matthew A. Quick A Trust is a legal arrangement in which legal title of property is given to a person or entity (referred to as the “trustee”) to hold for the use and benefit of another person (referred to as a “beneficiary”). A Trust contains instructions that the trustee is bound to follow in safekeeping the trust property. There are three main reasons to employ the use of a Trust: it keeps the principal’s estate from having to endure the probate process; it may have significant tax-saving advantages by reducing the taxable portion of an estate; and it shelters property from people or entities such as creditors, loved-ones who cannot handle large amounts of money, and the government. A Supplemental Needs Trust is defined by the instruction to distribute the Trust property for the use and benefit of a loved-one with special needs, but only for permissible “extra” quality of life items and services not provided by government benefits. Put another way, distributions from a Supplemental Needs Trust will supplement the benefits provided by the government, but not jeopardize eligibility for such benefits.

A Supplemental Needs Trust may be created by a third-person or by the loved-one with special needs. In the event a Supplemental Needs Trust is properly created by a third-person and properly administrated, then a loved-one with special needs will remain eligible for government benefits and not be required to reimburse the government for the same. Furthermore, the third-person who created the Supplemental Needs Trust can direct the further distribution of the property of the Supplemental Needs Trust upon the death of the loved-one with special needs.

On the other hand, if a loved-one with special needs receives property outright, then his or her eligibility for government benefits would be in jeopardy. To remain eligible for government benefits, the special needs loved-one would have to create a Supplemental Needs Trust that, upon the death of the special needs loved-one, would be subject to the benefit payback requirements of federal law. There are two (2) Supplemental Needs Trust options for this situation: first, a Medicaid Payback Trust established pursuant to 42 USC 1396p(d)(4)(A) (also referred to as a “(d)(4)(A) Trust”); or, second, a Community Pooled Account Trust established pursuant to 42 USC 1396(d)(4)(C) (also referred to as a “(d)(4)(C) Trust;” these Trusts are collectively referred to as “OBRA 1993 Special Needs Trusts” because of the federal law, the Omnibus Budget Reconciliation Act of 1993, that established the use of these Trusts).