Also Known As "Special Needs Trust"
A Payback or Special Needs Trust permits assets to be legally sheltered so that an individual with disabilities receiving government benefits is not rendered ineligible.
These trusts were first created by statute in 1993 (they were authorized under 42 USC § 1396 p (d)(4)(A) and are sometimes referred to as “d4A Trusts”). They are the same for SSI (Supplemental Security Income), or Medical Assistance (some states use MA, Medicaid, or have other names for this benefit). Since it is established by statute, these trusts must meet very specific criteria:
- The Trust is for the sole benefit of an individual who is disabled and under 65 years of age.
- The trust can now be established by the individual* (beneficiary), a parent, legal guardian, or a court.
- At the time of the beneficiary’s death, any residual funds are first used to pay back the state or states from which the beneficiary received Medical Assistance benefits.
*The Special Needs Trust Fairness Act (Pub.L. 114 – 255), federal legislation that allows people with disabilities to create their own special needs trusts instead of having to rely on others, is now law. The measure was included in the 21st Century Cures Act and was signed by President Obama on December 13, 2016.
Protect Assets In A Self-Funded Trust
This trust can be self-funded and can now be self-created (The Special Needs Trust Fairness Act 12/13/2016, Pub.L. 114 – 255). As a First Party Trust, it can be self-funded since funds belong to the individual and would otherwise make the individual ineligible for SSI or Medical Assistance (for example an inheritance, life insurance, a personal injury lawsuit settlement, etc.). Once the funds have been placed in this trust, they are no longer considered countable, available assets. This type of trust must be irrevocable and only the individual with disabilities can be a beneficiary. Other persons, including siblings, cannot be beneficiaries.
Trustee Responsibilities
During the beneficiary’s life, the trust funds must be used to supplement supports received from the government. The trustee must exercise caution so that the funds are never spent in any manner that reduces or eliminates the individual’s eligibility. Basically, the trustee cannot spend funds for any supports that the government supplies. Depending on circumstances, the trustee can be a family member, a for-profit corporate fiduciary, or a non-profit corporate fiduciary.
Funds After Death
At the time of the beneficiary’s death, any residual funds are first used to pay back the state or states from which the beneficiary received Medical Assistance benefits. If there are funds remaining after re-payment to the state or states is made in full, which by the way, becomes less likely the longer the individual lives, the remainder can be distributed as the trust dictates.
This trust is usually created in reaction to the individual receiving an extremely large amount of funds unexpectedly such as an inheritance, or a personal injury lawsuit. Each trust is individually created, individually approved, and individually maintained. Remember that in the realm of government benefits and supplemental needs trusts, the term Special Needs Trust refers specifically to a “Payback” Trust, and it is different from a Supplemental Needs Pooled Trust.
Have questions?
Need Help?
Our team has extensive experience in trust administration, social services, and government benefits. We can help you preserve and manage your assets and find human services and supports.
Contact RCFS
Topics
Education Trusts
Health Care Representative
Guardianship
Long Term Care
Substitute Health Care Decision Maker
Irrevocable Trusts
Supplemental Security Income (SSI)
Health Care Agent (POA)
staff
Medical Assistance
Trust Funds
Estate Planning
Advance Health Care Directives
Supplemental Needs Pooled Trust
Third Party Supplemental Needs Trusts
Representative Payee
Medicaid
Special Needs Trust
Financial Planning
Supplemental Needs Payback Trusts
Substitute Decision Making
Terms of Use (Disclaimer):
The information and materials provided on this website, specifically “Trust Matters”, are intended for general informational purposes only and do not constitute legal, financial, or tax advice. Any content on this website should not be relied upon as a substitute for advice from a professional fiduciary or other qualified financial or legal professional….