A first party supplemental needs trust, also known as a special needs trust, is established with the disabled beneficiary’s own funds, usually from a lawsuit settlement or inheritance, to avoid becoming ineligible for a needs-based government benefit. Such a trust, also called a special needs trusts, can hold excess countable income and assets for anyone under 65 years old. The first party supplemental needs trust created for a requires that someone other than the beneficiary serve as trustee. The trustee has the discretion to make payments to or for the disabled individual’s benefit. However, the trustee is limited by the trust terms from exercising this discretion for any purpose that would replace a government benefit the beneficiary is receiving. The trust assets are meant to supplement benefits, not replace them.
An Example of a Supplemental Needs Trust
If you are receiving 4 hours of community Medicaid long-term care, then your trust cannot supplement the payment to the aides for those same 4 hours. However, your trust can pay for additional hours that the program will not provide. As long as you are not on any other government benefits, the trust can pay for food, clothing, travel, etc. The trust funds can be expended for your benefit only.
Although assets can only be placed in the supplemental needs trust until the disabled individual turns 65 years old, the assets that have accumulated in the trust can be used for his or her entire lifetime. To be a valid first party supplemental needs trust for these purposes, the document will state that the Medicaid program will receive a payback at the time of the disabled beneficiary’s death. The payback to Medicaid is determined by the amount that was expended for by the program during the beneficiary’s lifetime, but recovery is limited to the amount of funds remaining in the trust.
Who Can Create This Type of Trust?
Previously, the law stated that this type of trust could only be created by a parent, grandparent, guardian, or court. The Federal 21st Century Cures Act amended this so that disabled individuals can create this type of trust for their own benefit. Much advocacy went into this law on the federal level and the advocacy is continuing on the state level so we can have an “enabling statute” to allow this change to be on the books in New York State. While the legislative process is ongoing, the Department of Health of New York issued a directive on May 22, 2017 directing the local departments of social services on this matter. These departments determine eligibility for the Medicaid program. The directive states that effective “immediately”, assets held in a trust created by a disabled person for their own benefit should not be deemed an available resource for determining Medicaid eligibility.
This change is small in that it only adds one word to the rule, but the impact is enormous. Before, disabled individuals had to involve family members or petition a court to protect their assets and receive the care they need. This change gives broader options to disabled individuals to get the assistance needed.
If you’d like to learn more about estate planning and special needs planning, we’re here to help.