Supplemental and Special Needs Trusts

 

Supplemental and Special Needs Trusts (SNT) are established for disabled individuals who are receiving publicly funded benefits, such as Medical Assistance (Medicaid) and Supplemental Security Income (SSI). These unique trusts are governed by specific federal and Minnesota laws and regulations and must be carefully drafted so the beneficiary will continue to qualify for benefits.

SNTs allow the trustee to distribute assets for goods and services that public benefit programs do not already provide. The trustee can pay for the needs unique to the disabled person that are not provided for by public assistance programs, such as education, special medical procedures, entertainment and travel.

There are two different types of SNTs. A Special Needs Trust is also sometimes called a “pay-back trust,” a “first-party trust” or a “self-settled trust.” It is funded with the beneficiary’s own assets, including a personal injury or divorce settlement or an inheritance. If the disabled person receives these proceeds directly, he or she will no longer qualify for government benefits. Instead the proceeds are paid directly into a Special Needs Trust to be used for the disabled person’s benefit.

A Special Needs Trust must be established by the beneficiary’s parent, grandparent, legal guardian, conservator or the court. Upon the death of the beneficiary, any remaining trust funds must be used to first pay back the State of Minnesota for public benefits received and any remaining funds are distributed as directed by the trust document.

The second type of SNT is the Supplemental Needs Trust. A Supplemental Needs Trust is also sometimes called a “third-party trust” or a “non-payback trust.” It is established by someone other than the beneficiary, the beneficiary’s spouse or anyone obligated to support a beneficiary. This type of trust can be especially important part of a family’s estate plan. For example, parents with a child with autism may provide in their Wills that the child’s inheritance is paid into a Supplemental Needs Trust. The trust funds are available to pay for the child’s lifetime needs. At the child’s death, the remaining funds are distributed as directed by the trust document and there is no requirement to pay back the government for benefits received by the disabled child. A Supplemental Needs Trust can also be created and funded during the parent’s lifetime to receive, for example, gifts and inherited assets from the disabled beneficiary’s relatives.

Attorney Randy F. Boggio’s representation was instrumental in Minnesota ultimately approving Supplemental Needs Trusts. He represented clients in the Minnesota Court of Appeals case holding that assets in a discretionary trust were not an available resource for eligibility for government benefits. In the Matter of Leona Carlisle, 498 N.W.2d 260 (Minn. App. 1993). The Carlisle case laid the groundwork for the Minnesota to pass legislation creating Supplemental Needs Trusts.