The Third Party Supplemental Needs Trust

December 10, 2010
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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:

• Additional medical treatment or insurance

• Individualized therapy

• Special medical equipment

• Case management

• Recreational activities

• Other goods, services and activities.

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.

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 (i.e., administer the trust) are other factors. The purpose of this Memorandum is to help clarify the appropriate use of the “Third-Party” SNT.

A “Third Party” or “Escher” SNT is a trust set up and funded by a parent, grandparent or other person who has no legal duty to support the disabled individual (parents have a duty to support their children only until they reach age 21).

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.

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