PART III - What is a Trust and What is a Special Needs Trust?

To contact us Click HERE


Inits most basic form a Trust is a legal document containing instructionsdirecting the management and distribution of the resources placed in the Trust. The person creating or funding the Trustis the Grantor.  The person who receivesthe benefit or on whose behalf the Trust was created is the Beneficiary.  The Grantor appoints a Trustee, which is aperson or entity (such as a bank) that will manage the Trust and distribute theTrust’s funds for the benefit of the Beneficiary.  Trusts are used for a variety of purposes inestate planning and are of particular importance in Special Needs EstatePlanning.
TheStatute that made the Difference
In1993, while closing various loopholes that permitted individuals to easilyqualify for Medicaid by transferring their property to trusts, Congress createdexemptions under the Omnibus Budget and Reconciliation Act for trusts createdfor the benefit of individuals with disabilities.  
Locatedin Title 42 of the United States Code Section 1396p(d)(4), the statutes providethat if a trust meets the U.S. Code requirements, then the trust is not acountable resource for SSI and Medicaid qualification purposes.  Neither will a transfer of assets to ad(4)(A) trust give rise to a period of ineligibility for either SSIor Medicaid.
Requirementsfor a self settled trust that is exempt under 42 U.S.C. Sec.1396p(d)(4)(A) include:
·       Thetrust beneficiary must be an individual under the age of 65 who qualifies as"disabled;”·       Thetrust must be established by a parent, grandparent, guardian, or court;·       Thetrust must provide that at the individual’s death, the State is repaid for theMedicaid services that it has provided during the individual’s life.
Theself-settled trust though established up by a Parent, Grandparent,guardian or the court is funded with the money or resources belongingto the beneficiary.
Doall special needs trusts have the "payback-the-State"requirement?  NO.  Just self-settled trusts.
Note:  Under this exemption  a ThirdParty Special Needs Trust can be set up and funded by anyone onbehalf of the disabled individual with resources not belonging to or owned bythe beneficiary.  The person establishing the trust must have nolegal obligation to support the disabled individual.  Third Party trusts are NOTrequired to have a payback provision.
Illustration: If aParent sets up the trust with proceeds awarded to the child from aninsurance settlement or from an inheritance (the beneficiary’s own funds), thenthis is a self-settled or first party trust and would require a paybackclause. 
Ifon the other hand, an uncle sets up a Special Needs Trust with hisown funds for the benefit of his nephew who is disabled.  That is a third party trust and does notrequire a payback clause. 
Thisis just another example of how planning carefully maximizes value.
Why Special Needs Trusts Are Important
Theyprotect government benefits eligibility - The Special Needs Trust allows anindividual with disabilities to have funds available for his or her benefitwithout the funds counting as a financial asset for benefit eligibilitypurposes
Theyprotect the opportunity to access superior care and services options - Even where abeneficiary never needs Federal or State public benefits and services (which isvery rare, but does happen) consider the special life management needs he orshe still has, and use a SNT as part of a comprehensive plan to meet thoseneeds in an organized manner.
WithoutSpecial Needs Trusts many individuals with disabilities would be relegated tosubsistence living and have access to fewer opportunities and options.  They have a typically greater disparitybetween income potential and the outflow (expenses).  They have higher medical care costs and mayneed special equipment.  Transportationis going to be more expensive, and might need special help with even the mostbasic tasks.  Public benefits are almostalways vital for basic needs or as a safety net.
 Putting it all together, what is aSupplemental Needs Trust?
ASupplemental Needs Trust is a special kind of trust which holds title toproperty for the benefit of a child or adult who has a disability.  The funds in the Trust can be used tosupplement benefits received from various governmental assistance programsincluding SSI and Medicaid.  A specialneeds trust will manage a variety of resources for the benefit of the injuredor disabled person while maintaining the person’s eligibility for publicassistance benefits.
·       ASupplemental Needs Trust is, first of all, a Trust for the benefit of anindividual under the age of 65 who qualifies as being "disabled;”·       TheBeneficiary has no direct control or access to funds in the Trust;·       ATrustee manages the trust and has broad discretion to make distributions onbehalf of Beneficiary according to trust distribution directives.
Result:Trust assets do not count against the beneficiary's resources or assets.
Asan essential component of a comprehensive care plan, the well-designed SpecialNeeds Trust (SNT) will, at the same time:
·       Protect public benefits - The SpecialNeeds Trust puts a middle step between the money or resources, andthe person with a disability.  Assetsin trust do not count as resources to the individual with special needsand thus preserves eligibility for public benefits such as SSI and Medicaid.·       Protect the quality of care - A well-designedSpecial Needs Trust provides for vastly superior care options andopportunities for treatment and rehabilitation, housing, electronicequipment, computers, job training, vacations etc.  Supplementalitems that will enhance dignity, productivity and comfort
Whateverthe extent of your resources, preparing and executing a good Special NeedsEstate Plan will make more effective use of those resources.
Planningfor the future security of a loved one with special needs can seem a dauntingtask, but it is essential to takeaction now!
Thefirst step is to find a competent attorney and/or financial planner.  Special Needs Trusts must complywith complex federal and state laws to be effective, and although yourunique input is absolutely necessary, your attorney should draft the document.
 Asalways, feel free to contact our offices at (585) 235-0980 to discuss anyquestions or comments.  Also, visit ourwebsite at www.CiminelliLaw.com.