Special Needs Trusts

By: Marty Bodnar, estate planning attorney

Estate planning comes down to 2 simple questions – “Who gets what?” and “Who’s in charge”? However, if one of the beneficiaries is receiving or might receive Medicaid or Supplemental Security Income (“SSI”) in the future, the answer to these questions gets more complicated.

It gets complicated because a special needs trust (“SNT”) needs to be established to safeguard the beneficiary’s government benefits and to withstand the scrutiny of the Federal Government in reviewing the SNT.

As a result, the question becomes “Who gets what when and what is he or she allowed to receive?” Government regulations in this area are stringent and change frequently.

By placing the inheritance into an SNT, the disabled beneficiary has an assured source of supplemental money that can be used to pay for goods and services not covered by their government benefits. If an SNT is not used and funds are given directly to the beneficiary, he or she could lose his or her government benefits.

SNTs can be established and funded using either the disabled beneficiary’s own funds or by a third party (often a relative). When an SNT is funded using the disabled beneficiary’s own funds, it’s called a “self-settled” SNT. When someone other than the disabled beneficiary funds the SNT (i.e., a parent, family member, or friend of the disabled individual) it’s called a “third-party” SNT. These are commonly created as part of an estate plan for a parent or grandparent.

The most important difference between a self-settled and a third party SNT is that a self-settled SNT must contain a “payback provision.” This means that any funds left in the trust after the beneficiary dies must be paid back to the state Medicaid agency for the assistance provided. However, third party SNTs don’t need to contain a payback provision and allow the remaining trust assets to pass to the residuary beneficiaries designated in the trust instrument upon the death of the disabled individual. 

To learn more about “Protecting Government Benefits Using Supplemental Needs Trusts,” read this article.

Our attorneys are very experienced in discussing and assisting in special needs trusts. Feel free to contact any of our estate planning attorneys in Ann Arbor to discuss your questions.