Supplemental Needs Trusts: Providing for Your Special Needs Beneficiary While Preserving His or Her Public Benefits

Planning for the future care of a special needs beneficiary, especially if that beneficiary is your child, can be difficult and overwhelming.  There are many facets to consider, chief among them: upon what assets will the special needs individual rely after you have passed if you have been his or her main source of support (and especially if the special needs individual suffers from a disability that prevents him or her from working)?

Consider this: leaving your assets to a special needs beneficiary outright can cause his or her means-tested government benefits to be terminated or decreased.  For instance, in Florida, disabled individuals receiving Supplemental Security Income cannot have more than $2,000.00 in assets.  Thus, although you intend to provide for your special needs beneficiary, you may cause unintentional harm by devising your assets to him or her outright, thereby severing means-tested benefits, such as Medicaid and Supplemental Security Income. 

This post focuses on what are known as third-party special/supplemental needs trust, which are trusts settled with assets belonging to someone other than the special needs recipient (e.g., his or her parent, grandparent, sibling, etc.).  Different rules apply for a beneficiary who wants to settle a trust with his or her own assets.

In order to properly establish a supplemental needs trust, you must ensure that the special needs beneficiary is unable to access the funds him or herself and that all distributions from the trust are made only to supplement, but not to supplant, public benefits.  Supplemental needs are items that are not covered by, for instance, Medicaid or Medicare.  Some examples include: clothing; tuition and books; travel; entertainment care managers; and personal care items.

In addition to protecting your special needs beneficiary, a benefit to a supplemental needs trust is that, if properly drafted, the trust does not require you to include a Medicaid pay-back provision (which is a federally mandated law that requires the state Medicaid agency to be reimbursed upon the death of the beneficiary, which is a requirement of a first-party special needs trust).  Rather, you as the grantor, can direct to whom or which entities the remaining trust assets should be distributed.

Of critical importance in designing your supplemental needs trust is the selection of trustee(s) in order to protect your special needs beneficiary.  If properly drafted, the beneficiary will have no access to the trust funds and will not be able to object to distributions or lack thereof.  Recall that in a third-party supplemental needs trust, the trustee will have total control of the assets, including investment and distribution decisions.  You should have total faith in both the integrity and the financial management skills of your selected trustee.

If your special needs beneficiary is currently receiving or may at some point in the future collect means-tested benefits, you should carefully plan ahead and speak with an attorney about creating a supplemental needs trust that provides for the supplemental needs of the beneficiary but which does not sever his or her benefits.  The experienced team at Chepenik Trushin LLP is here to help you devise assets to a special needs beneficiary in compliance with federal and state law.  Please do not hesitate to contact us for an initial consultation.