Trust Matters  
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A Third-Party Supplemental Needs Trust permits someone to plan and financially provide for an individual with disabilities without affecting the individual’s eligibility for government benefits. These trusts are created and funded by a third party (the Settlor), – someone other than the individual with disabilities. They are often created and funded by family and/or relatives, the individual’s spouse, a legal guardian, or a court, and can exist as part of their will (Testamentary Trust), or they can be created, funded, and funds can be disbursed while the Settlor is still alive (Inter-Vivos Trust).

The Duties of a Trustee

If it can be used for support (basic food, housing, or medicinal care) of the individual or if the trust requires a pre-determined amount to be spent on the individual (i.e. $50.00 per month; all interest income; etc.) the trust will render the individual ineligible for SSI (Supplemental Security Income), or Medical Assistance (Medicaid). Therefore, the trust must be written to give the trustee discretion to spend or retain funds, but the trustee must be directed to not disburse funds in any manner that would reduce or eliminate government benefits the individual is receiving, or may in the future, be eligible to receive. The trustee can always supplement the individual’s benefits, but never supplant them. A Third Party Funded Supplemental Needs Trust must contain language that protects the eligibility of a beneficiary with disabilities as previously recommended in this paragraph. The person establishing the trust, the Settlor, can direct who will receive any assets that remain (the residual) in the trust at the time of the disabled beneficiary’s death.

Distinguishing Between Types of Trusts

These trusts are often incorrectly called a “Special Needs” Trust. In the realm of government benefits and supplemental needs trusts, the term Special Needs Trust refers specifically to a “Payback” Trust – please see our information regarding Payback Trusts.

It is very important to remember that a Third Party Supplemental Needs Trust cannot be self-funded. Once an individual is entitled to receive assets, a First-Party Supplemental Trust must be established – a Pooled Trust or Payback Trust – to accept the individual’s assets so their benefits will not be disrupted. The individual’s assets cannot be placed in a Third-Party Trust, but the Third-Party Trust assets can safely flow into the First-Party Trust.

Richard Howard

About the author: Rich Howard has been the President of River Communities Fiduciary Services since its inception in 2016.

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