The terms “Supplemental Needs Trusts” and “Special Needs Trusts” describe trusts specifically designed to provide resources to persons who also receive public benefits due to special needs or a disability. In Minnesota, the terms are often lengthened to “Third-Party Funded Supplemental Needs Trusts” and “Self-Settled Special Needs Trusts” to reflect the source from which funding comes (i.e. the money belongs to someone other than the beneficiary in a Supplemental Needs Trust, but belongs to the beneficiary in a Special Needs Trust). The most important restriction to remember is that neither type of trust may pay cash to the beneficiary, nor may it pay for any food, shelter, or any medical needs provided by Medical Assistance (Minnesota’s Medicaid program). An accounting showing all additions to and distributions from the trust must be filed annually with the Minnesota Department of Human Services, so it is imperative that trustees obtain adequate legal advice to ensure all distributions are permissible.
Though they may have the same purpose, the two types of trusts have distinctive features that must be recognized, some of which are provided below:
Supplemental Needs Trusts:
- Funded with assets owned by a Third Party—The trust is established by a relative or friend who wishes to set aside money for the benefit of the beneficiary. It is important that the beneficiary not receive the money directly, as this could lead to loss of public benefits.
- Age Limitations—There are no age limitations for the disabled beneficiary for the creation or funding of a Supplemental Needs Trust. However, a Supplemental Needs Trust is no longer enforceable after the beneficiary becomes a resident of a Long-Term-Care facility after the age of 64.
- No Required Government Payback—After the death of the beneficiary, Medical Assistance does not require reimbursement for the received public benefits if the trust was directly funded by a third party.
Special Needs Trust:
- Funded with assets owned by the Beneficiary—The trust is most commonly established when the beneficiary inherits money. Before actual receipt of the money, the beneficiary, or a permitted third party, such as a parent, grandparent, guardian, conservator or a court, may create the Special Needs Trust in order to avoid losing their public benefits.
- Age Limitations—A Special Needs Trust must be created and funded prior to the beneficiary reaching the age of 65. Assets may continue to be held in the Special Needs Trust after the beneficiary has attained the age of 65, but no additional assets may be transferred into the Special Needs Trust.
- Required Governmental Payback—After the death of the beneficiary, the government does require the trust to reimburse the expenses paid by Medical Assistance over the course of the beneficiary’s lifetime.
In conclusion, Supplemental Needs Trusts and Special Needs Trusts are quite similar estate planning vehicles that allow trustees to provide resources to persons who also receive public benefits due to special needs or a disability. At Chandler and Brown, Ltd. our knowledgeable estate planning attorneys would be happy to meet and discuss your personal situation. We will work together to determine the best plan in order to prepare you and your family for the future.