Supplemental Needs Trusts (SNTs) provide a supplemental source of funds for people with disabilities. Because of certain legal limitations on these trusts, individuals can remain eligible for government benefits that are based on need, such as Supplemental Security Income (SSI) and Medicaid. SNTs enhance the quality of life of the person with the disability (who is referred to as the "beneficiary" because the trust is set up for his or her benefit). The trust can purchase additional support services, therapy and care that are not covered, or are not covered adequately, by the Medicaid program, but which are vital to his or her well-being. The SNT is part of a "future care plan" which includes management of property and arrangements for personal care, vocational services, housing and case management.

SNTs And Government Benefits

SSI and Medicaid provide a basic level of support for food, clothing, shelter and medical care. The SNT fills in the gaps. Based on the beneficiary's particular needs, the trust can pay for the following, to the extent they are not covered by Medicaid:

A supplemental needs trust is not counted as a beneficiary's resource for SSI purposes. For purposes of SSI and Medicaid, the trust is not "actually available" to the beneficiary because he or she has no right to demand that the trust pay for any good or services.

All distributions or payments from the trust are made at the sole discretion of the trustee, and they are usually made directly to providers of goods and services to the beneficiary. Any money paid directly to the beneficiary will be counted for purposes of eligibility for SSI and Medicaid.

In-kind donations of food, clothing or shelter - that is, when someone (including a parent) gives the disabled individual food, clothes, or a place to live for free or at a reduced rate - will generally reduce SSI payments by up to one-third. Other in-kind donations goods of services do not reduce SSI benefits. Unlike SSI, Medicaid does not count any type of in-kind donation as income.

Basic Forms of SNTs

There are three basic forms of SNTs. The appropriate type of trusts for a disabled individual depends on whose money or assets will be funding the trust. The amount of money available to fund the trust and whether there is someone who can act as trustee (ie, administer the trust) are other factors.

Third Party "Escher Trust"

These trusts are called "third party trusts" because they are created by a third party - i.e., by someone who is not the beneficiary. In the most common situation, parents will establish an SNT for their child in their wills, which will take effect upon the death of the surviving parent. Caring relatives or friends may also want to set up a trust to be assured that their money is being used to improve the disabled individual's quality of life, and not causing problems with eligibility for government benefits. The advantage to a third party trust is that the parent can use it to provide for a disabled child during his or her lifetime and will still be able to direct how any remaining assets should be distributed after the child's death.

As long as the SNT was established when the parent had no duty to support the child and the trust was not funded with any property of the child, the State has no right of recovery and no right to place a lien against the trust property. In other words, if none of the beneficiary's assets were used to fund the trust, there is no requirement that the State be paid back for Medicaid expenditures upon the death of the beneficiary.

You may have heard these trusts referred to as "Escher" trusts. Before SNTs were specifically authorized by the New York State Legislature in 1993, there was a court ruling in a case called Estate of Escher, that allowed a family to create this type of trust for a disabled relative.

OBRA-93 Payback Trusts

This form of SNT must be established by a parent, grandparent, legal guardian, or court and is funded with the assets of a beneficiary who is under the age of 65. The State must be given a right of recovery - in other words, a right to take the assets in the trust when the beneficiary dies - only if the trust is funded with assets of the disabled beneficiary under the age of 65. A person with a disability is permitted to transfer his or her own assets into a qualifying SNT and still receive SSI and Medicaid, as long as the state will be paid back after the beneficiary dies.

Payback trusts are typically set up when an individual receives a lump sum, including an inheritance or the proceeds from a lawsuit or settlement. If the disabled person anticipates large medical bills, the need for lifetime care, or is severely disabled, he or she can use the money to fund a "payback trust" and still qualify for Medicaid and SSI.

The Department of Social Services must be notified when this form of SNT is created or funded, before the trust makes certain transactions, and when the beneficiary dies.

Pooled Trusts

By law, pooled SNTs are established and administered by a not-for-profit organization. Individual trust accounts are established by a "sponsor" who signs a sponsor agreement. As with individual SNTs, there are two basic forms of pooled SNTs. Third party pooled trusts are funded with the assets of parents, relatives and/or friends and "OBRA-93" pooled trusts are funded with the assets of the disabled beneficiary. The sponsor of a trust account funded with the beneficiary's assets can be the person with a disability, a parent, legal guardian, or court. Pooled trusts usually require a minimum amount to set up an account. The sponsor may also require that after the beneficiary dies, a percentage of the remaining balance will either remain in the trust to be used for other disabled beneficiaries or pass to the not-for-profit agency.

Pierro Law Group, LLC

Attorneys at Pierro Law Group, LLC, have helped hundreds of disabled individuals and their families use SNTs to provide a source of funds for the disabled individual without risking the loss of government benefits. If you are an individual with a disability, a family member of an individual with a disability, or simply a concerned friend or advocate, and would like to discuss how a supplemental needs trust may be integrated into your estate and long term care plan, we would be happy to provide you with a free consultation to discuss your concerns in greater detail.

© 2004 Pierro Law Group, LLC