Special Needs Trusts

The principal purpose of a SNT is to preserve public benefits for disabled or aged beneficiaries. Assets in a SNT can provide funds to supplement the beneficiary's public benefits without interfering with those benefits.

Generally, there are two types of SNTs, a first party SNT and a third party SNT. The first party SNT is established by the recipient of the government benefits. The third party SNT is established by a third party (i.e.: parent) for the benefit of the recipient of the government benefit (i.e.: child).

All properly designed SNTs are drafted specifically so that assets in the trust are not countable as a resource to the recipient of needs based governmental benefits. Certain property transfers may have an impact on public benefit eligibility. The government may be able to seek reimbursement for the costs of providing benefits if the form and timing of transfers are not administered to properly.

If the terms of the trust provide that the beneficiary does not have discretion over the distributions, that the beneficiary cannot control the amount or frequency of trust distributions and cannot revoke the trust, the trust will not be counted as an asset for many benefit programs. The trustee must have discretion to pay for the special needs of the beneficiary but the payments cannot be mandatory.

The trust will be counted as a resource if the beneficiary has "unrestricted access to the principal;" if, under California law, the beneficiary can direct the use of funds for his or her "support" or "maintenance"; or if mandatory outright distributions can be made to the beneficiary.

In many cases, administration of a SNT can be as, if not more, complex than the drafting of the trust. In addition to the regular fiduciary duties of a trustee, the SNT trustee must be careful to assure that disbursements from the trust will not be considered as income so that the public benefits are maintained. To this end, the Trustee will be required to know and respect the rather complicated eligibility rules.

The trustee of a SNT will need to understand what public benefits programs might be available to the beneficiary and how receipt of income, earned or unearned (or direct purchase of goods or services) or in-kind support and maintenance might affect eligibility. The Trustee will also be required to understand the reporting rules for government programs and to keep current with new developments regarding these government programs to prevent a reduction in benefits.

free initial estate planning consultation
Contact form