Question: My son who is disabled and collects SSI has an existing Special Needs Trust. My parents would like to give him a gift, can I deposit the money into that trust?
Answer: That depends. Special Needs Trusts, also know as Supplemental Needs Trusts (SNT) are trusts that protect a disabled individuals own income and assets. Additionally, these types of trusts can allow a disabled individual to receive an inheritance, gift or personal injury settlement while still ensuring that any need based government benefits such as SSI or Medicaid will not be jeopardized. These trust play in integral part in ensuring that the individual remains on government benefits and the monies in the trust are used to supplemental his or her life.
These trusts come in many different forms. For starters it is important to understand whether the trust that your son has is considered a First Party SNT (self-settled) or a Third Party SNT. The most basic distinction is that First Party SNT’s are funded with money that belongs to the disabled individual, in other words funded by the first party. Some examples of money properly deposited into a first party trust would be income earned by the disabled individual or a personal injury award paid out to them. A third-party trust on the other hand would be used in the case of a bequest or inheritance or a life time gift. Here we have money that was never in “the hands of” the disabled individual and therefore is considered third party money appropriately funded into a Third Party SNT. Among the most important distinction in these trusts is how the use of the assets are scrutinized during the lifetime of the disabled individual and then how the money is treated after the disabled individual passes away. In order to maintain the protection afforded by the SNT it is important to ensure that monies are used only for the disabled person and in accordance with all regulations. With a Third Party SNT the creator or grantor can direct where any remaining assets go at the time of the individual’s passing, this is not the case with a First Party SNT. First Party SNT’s require a payback provision that on the termination of the trust, typically triggered by the death of the disabled beneficiary, the trustee shall reimburse the state Medicaid agency for benefits paid to the beneficiary during the existence of the trust. This is the primary reason that it is important to know what type of existing trust you are depositing money into before you make that deposit. Inadvertently depositing third party money into a self-settled trust could create a scenario where a payback is required on monies that should have been protected from that requirement.
To best understand the type of Trust your son has and the requirements, you should consult an attorney in your area that specializes in Supplemental Needs Trust.
– Robin Burner Daleo, Esq. and Nancy Burner, Esq