Special Needs versus Supplemental Needs: The statutory language for this planning area uses the term Supplemental Needs Trust. Another commonly used term is Special Needs Trust. They both reference the same type of Trust. We use the term Supplemental Needs Trust for our documents since that is the statutory language.
Supplemental Needs Planning: Disabled individuals may receive benefits from various government programs including SSI, Social Security disability, Medicare and Medicaid, as well as housing and other benefits from DDD and other government agencies. Some of these benefits (in particular, SSI, Medicaid and housing benefits), may not be available or may be lost depending upon the amount of income and assets of the disabled individual. Supplemental Needs Planning involves structuring a disabled individual’s assets in order to maximize governmental benefits.
Supplemental Needs Trust: Supplemental Needs Trusts are created by a trust document which allows for a Trustee to manage assets for the benefit of the disabled individual, subject to the terms of the Trust. The terms of the Trust are drafted to allow the disabled individual to qualify for certain governmental benefits even with the assets in the Trust. There are two general types of Supplemental Needs Trusts: self funded trusts and third party funded trusts.
Self Funded Trust: A self funded trust, often called OBRA-93 or (d)(4)(a) trusts, is a trust which is funded with assets of the disabled individual. This type of trust is allowed only in certain circumstances and must contain specific provisions allowing for Medicaid and other government agencies to be paid back out of the remaining trust funds upon the disabled individual’s death. Assets of other persons may also be placed in a self funded trust, but is usually better to keep these other assets separate from the assets of the disabled individual.
Third Party Funded Trust: A third party funded trust is funded with assets of someone other than the disabled individual, usually a parent or other relative. Care must be taken to avoid placing any of the disabled individual’s assets into such a third party funded trust as this could disqualify the trust.
Inter Vivos Trust: An inter vivos trust, also called a living trust, is a third party funded trust created during the lifetime of the grantor of the Trust. The grantor, or anyone else other than the disabled individual, can then place assets in the Trust for the benefit of the disabled individual.
Testamentary Trust: A testamentary trust is a third party funded trust created by a Will. Anyone whose estate may be left to a disabled individual should consider having Supplemental Needs Trust provisions in their Will.
Correcting An Inheritance: Sometimes a disabled individual receives an inheritance directly without any Supplemental Needs Trust being created. This can result in the disabled individual being unintentionally disqualified from government benefits. This situation can often be remedied by obtaining Court approval to place the inherited assets in an OBRA-93 (d)(4)(a) Supplemental Needs Trust.
Personal Injury Awards: The receipt of a personal injury award can also result in the disabled individual being disqualified from government benefits. This situation can be remedied by incorporating an OBRA-93 (d)(4)(a) Supplemental Needs Trust as part of any settlement agreement.