Special Needs Planning

Trust terms

 

Settlor/Grantor: Refers to the person(s) or organization who establishes the trust. The settlor establishes a trust by transferring funds to a trustee and designating a specific beneficiary to receive the benefits from the trust.

 

Trustee: This is the person chosen to safeguard trust funds and be responsible for distributing monies for the benefit of the beneficiary. The position of trustee carries with it the highest level of fiduciary duties; the trustee must not act selfishly and must only act in ways which will benefit the beneficiar(ies)

 

Beneficiary: May be one or multiple people, or an organization which receives the benefits from the trust. In other types of trusts the beneficiaries may have some control over how the funds will be spent, and in other cases only the trustee holds that discretion. However, with an SNT it is crucial that the beneficiary does not have any direct control over the trust funds, so that the money will not be counted as a resource when determining eligibility for means-test government benefits.

 

Self-settled or first-party SNT

A self-settled SNT is one which is funded with the disabled beneficiaries own funds which he or she is receiving from an inheritance, a settlement or personal injury award. The funds are transferred to a trustee to be used for the beneficiary’s needs which are not covered by means-tested government benefits.

 

These trusts are authorized by federal law and may not be established by the disabled beneficiary. They can only be established by a parent, a guardian, or a court order.

 

In a general sense, supplemental needs are usually those that do not fall under the categories of food, shelter, or clothing, as these are the areas paid for by governmental programs. Perhaps the most important part of a self-settled SNT to be cognizant of is that fact that once the trust terminates (e.g. upon the death of the beneficiary), the trust funds must first be used to repay Medicaid for all medical expenses paid by Medicaid.

 

Third party SNT

A third party SNT is established with funds of people other than the beneficiary – usually a family member wanting to provide for a disabled loved one through their will, or donors who want to provide for the comfort of one who has experienced a sudden disability.

 

Just like a self-settle SNT, third party trust funds must only be used to supplement government benefits, and may not be used to pay for items or services already covered by government programs. Otherwise, the beneficiary risks having his or her government benefits reduced or terminated.

 

Unlike a self-settled SNT, however, third party trusts do not have to pay back Medicaid when they terminate.

 

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