Understanding Supplemental Needs Trusts

Sep 15, 2023 | Estates Planning and Asset Protection

A Supplemental Needs Trust (SNT), also known as a Special Needs Trust, is a legal arrangement designed to help individuals with disabilities maintain their eligibility for government benefits while providing additional financial support. 

This category of trust can be set up by a family member or guardian to hold and manage assets for the benefit of a person with special needs. The main goal of an SNT is to help the beneficiary maintain their eligibility for government benefits while ensuring that needs not covered by those benefits are taken care of. 

Benefits for individuals with disabilities

A Special Needs Trust (SNT) offers many benefits for individuals with disabilities. In addition to providing financial assistance, the trust allows you and your loved ones to enjoy a better quality of life, legal protection, and flexibility.

Improved quality of life

You can use the funds in an SNT to enhance various aspects of life through therapies, education, recreation, and other essential needs that government benefits may not cover.

Greater legal protection 

The assets held in a trust are protected from creditors and legal judgments, providing a secure way to safeguard your assets.

Flexible financial options

Trust assets can potentially be invested and increase in value over time. Additionally, distributions from the trust can be customized to meet the specific needs of the beneficiary.

Government benefits and Special Needs Trusts

A carefully crafted SNT allows the beneficiary to maintain eligibility for a range of government benefits, as SNT assets are not considered “available resources” when determining eligibility for these programs. 

This helps to maintain the individual’s eligibility for programs like those listed below.

Supplemental Security Income (SSI)

A helpful program that provides a monthly stipend to individuals who have limited income and resources, SSI supports people who are disabled, blind, or elderly. This financial assistance can make a significant difference in their lives by providing them with additional support to meet their basic needs.

Medicaid 

A program that provides health coverage to individuals who meet certain criteria, Medicaid assists low-income adults, elderly adults, children, pregnant women, and people with disabilities.

Section 8 housing

This is a rental assistance program funded by the federal government and administered locally.

State and local resources

There are several state and local assistance programs available to help individuals and families in need. These programs aim to provide support and resources to those facing financial challenges or other difficulties and can offer assistance with housing, healthcare, food, education, and more. 

These programs, laws, and regulations may differ depending on the jurisdiction. 

Key provisions of Supplemental Needs Trusts

While the details of each SNT can differ depending on the specific situation, there are some common provisions that are usually included. These provisions serve as the foundation of the trust.  

Here are some key provisions that you should consider including in your trust.

Trustee appointment

Who will be managing the trust and distributions of assets held within? The trustee could be a family member, a loved one, or an experienced professional trustee

Purposeful language

This term refers to the specific intention of only covering additional needs for the beneficiary rather than their essential support.

Non-supplanting clause

This clause is designed to prioritize using government benefits as the primary source of support, with the funds provided serving as a supplementary resource. This clause helps ensure that the funds are used responsibly and in accordance with the intended purpose.

Spendthrift provision

A spendthrift provision helps safeguard trust assets from creditors until they are ready to be distributed. This means creditors cannot access these assets prematurely, providing added protection for the trust and its beneficiaries.

Termination provisions

These provisions outline how the remaining trust assets are managed when the beneficiary dies.

Trustee powers and limitations

This section of an SNT outlines the specific actions a trustee can take and those they are not permitted to take. These guidelines are in place to ensure that the trustee always acts in the best interest of the beneficiary.

Distribution standards 

Distribution standards are guidelines that determine when and how trust assets should be distributed for the beneficiary’s benefit. These standards ensure the distribution process is fair and beneficial to the recipient.

Better together: the power of pooled trusts

One option to safeguard a beneficiary’s finances and eligibility for public benefits is establishing a first-party SNT. However, there are situations where it makes more sense to use a shared or “pooled” SNT than a separate one.

A pooled trust is a type of SNT designed to benefit individuals with disabilities. It is termed “pooled” because it combines the assets of many beneficiaries, but unlike a traditional SNT, which is individually established for one beneficiary, a pooled trust manages and invests the assets collectively while maintaining separate accounts for each beneficiary’s needs. 

Characteristics of pooled trusts

Pooled trust organizations are a huge resource. While the trust departments of financial institutions typically set account minimums of half a million dollars or more, pooled trusts generally accept accounts of any size. 

Here are some of the defining characteristics of a pooled trust.

Established and managed by non-profit organizations

A pooled trust is typically established by a non-profit association. The non-profit organization acts as a trustee and manages the pooled investments, but when it comes to distributions, they are made based on an individual beneficiary’s needs.

Separate accounts for beneficiaries

Even though the assets are pooled for investment purposes, each beneficiary has a separate “sub-account” that tracks their individual contributions and distributions.

Beneficiary criteria

Pooled trusts are available for people of any age, including those over 65, which can be a significant advantage over certain other types of SNTs.

Joining the trust

Often, joining a pooled trust requires a joinder agreement. This is essentially a contract that lays out the terms and conditions under which the funds will be managed and distributed.

Upon death of the beneficiary

Typically, when a beneficiary dies, any funds remaining in their account are either retained by the non-profit organization to benefit other disabled individuals or used to reimburse the state for Medicaid benefits provided, depending on the terms of the trust and state regulations.

Advantages of a pooled trust

A pooled trust offers several advantages for individuals with disabilities, including professional management of funds, cost-effectiveness through shared administration, and flexibility in disbursing funds for various needs while preserving eligibility for government benefits.

Professional management

Assets are professionally managed, which can be beneficial for beneficiaries who don’t have a suitable individual trustee available or for those with smaller amounts of assets.

Cost-effective

It may be a more cost-effective solution for those who cannot afford the setup and administration fees of an individual SNT.

Benefit retention

Like other SNTs, a pooled trust allows beneficiaries to retain eligibility for means-tested government benefits, such as Medicaid and SSI.

Flexible entry

Some individuals, especially those over 65, may find it challenging to establish an individual SNT. In such cases, a pooled trust is an alternative option.

Community aspect

As they are managed by non-profit organizations, there’s often a sense of community and shared purpose among members and their families.

Work with a Texas Supplemental Needs Trust attorney

For knowledgeable advice on establishing a supplemental needs trust for your disabled or vulnerable family member without affecting government program eligibility, turn to SMC ESQ PLLC. 

Our experienced estate planning attorneys take the time to understand your family dynamics, financial needs, and healthcare requirements to create a tailored strategy that ensures peace of mind. 

Contact us to discuss how a Special Needs Trust can benefit your loved one’s future.

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