What is a Special Needs Trust?
A Special Needs Trust (SNT) is a tool used to provide financial support to an individual with a disability. The goal of the SNT is to preserve eligibility for needs-based government benefits, including Medical Assistance (MA) and Supplemental Security Income (SSI), while providing the beneficiary with the resources to supplement such government benefits. If the SNT has the proper provisions, the assets within the trust may be excludable from the assets of the beneficiary for the purpose of determining eligibility for MA and SSI.
As the purpose of the trust is to supplement the benefits provided by MA and SSI, and not replace them, distributions should be for support beyond the basic needs covered by these programs. If distributions are for expenses of basic needs, government benefits may be reduced accordingly. A few examples of expenses that exceed the basic needs covered by MA and SSI include excess medical and dental expenses, medical equipment, education and training, and special dietary needs.
There are different types of SNTs, each with their own rules and requirements – below is a brief overview of common types of trusts.
Self-Settled Trusts
A Self-Settled Trust, also referred to as a First Party SNT, is an irrevocable trust funded with assets or income that belong to the individual with a disability. The beneficiary of this type of SNT must be classified as disabled by the Social Security Administration and must be under the age of sixty-five when the trust is established. This type of SNT must also include payback provisions to the Department of Health Services (DHS), when the trust terminates, for an amount equal to the MA received by the beneficiary during their lifetime.
Supplemental Needs Trusts
Supplemental Needs Trusts, also referred to as Third Party Trusts, are funded with resources from someone other than the beneficiary. Similar to a Self-Settled Trust, the assets in the trust may be excludable from the beneficiary’s resources when qualifying for needs-based government benefits, but unlike the Self-Settled Trust, Supplemental Needs Trusts often do not require Medical Assistance payback provisions. The contingent beneficiary of a Supplemental Needs Trust can be anyone, including beneficiaries without a disability.
Pooled Trusts
Pooled Trusts are often used if the cost associated with either of the trusts previously mentioned is not feasible given the resources available. A Pooled Trust is typically managed by a non-profit organization, which combines the resources of many beneficiaries into a single trust, often reducing administrative expenses. Each beneficiary will have their own sub-account that can be used for their benefit and shares in the investment performance of the trust. Sub-accounts can be funded by the beneficiary’s own resources (first party) or by the resources of someone other than the beneficiary (third party). Assets remaining in the beneficiary’s subaccount upon their death are typically retained by the trust or used to payback DHS for the medical assistance received by the beneficiary throughout their lifetime.
Each of these types of trusts can provide a unique benefit and your financial advisor can help you determine which is most appropriate for your situation.
Waldron Private Wealth (“Company”) is an SEC registered investment adviser with its principal place of business in the Commonwealth of Pennsylvania. Company may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information about the Firm’s registration status and business operations, please consult Waldron’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.
This material is for informational purposes only and is not intended to be an offer, recommendation or solicitation to purchase or sell any security or product or to employ a specific investment strategy. Due to various factors, including changing market conditions, aforementioned information may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from Company, or from any other investment professional. Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Asset allocation and diversification do not guarantee a profit or protect against loss. Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.
