Frequently Asked Questions
- What is a Supplemental Needs Trust (also known as a Special Needs Trust)?
- Do I need a Supplemental Needs Trust?
- Who should be in charge of the Supplemental Needs Trust?
- When is a Payback Supplemental Needs Trust (d(4)(A) or d(4)(C) Supplemental Needs Trusts) required?
- Can a Supplemental Needs Trust buy a house?
- Can a Supplemental Needs Trust buy an automobile or van?
- Can a Supplemental Needs Trust pay for vacations?
- Can a Supplemental Needs Trust distribute cash to the beneficiary?
- How are Supplemental Needs Trusts taxed?
- Can the disabled person serve as trustee?
- Can a Supplemental Needs Trust be used by recipients of settlements or personal injury awards?
What is a Supplemental Needs Trust (also known as a Special Needs Trust)?
A Supplemental Needs Trust is a special kind of trust which holds title to property for the benefit of a child or adult who has a disability. The Special Needs Trust can be used to supplement benefits received from various governmental assistance programs including SSI and Medicaid. A trust can hold cash, personal property, or real property, or can be the beneficiary of life insurance proceeds.
Do I need a Supplemental Needs Trust?
A Supplemental Needs Trust is usually necessary only if the person is receiving or expects to need Medicaid, SSI or other means-tested government benefits. Even if a disabled person is not currently receiving benefits, a trust should be considered if there is a possibility that the person may received means-tested government benefits in the future.
Who should be in charge of the Supplemental Needs Trust?
The combination of a family member and a professional trustee is often the best arrangement. The professional trustee must be sensitive to the needs of the beneficiary and be knowledgeable about governmental benefits.
When is a Payback Supplemental Needs Trust (d(4)(A) or d(4)(C) Supplemental Needs Trusts) required?
A Payback Trust is required only if the funds being used to establish the trust are those of the trust beneficiary. Cases involving personal injury settlements fall under this category. If a parent's funds are used to establish a trust for a child, a payback provision is not required.
Can a Supplemental Needs Trust buy a house?
Yes. A Special Needs Trust can buy a house, and there are often good reasons to do so. However, there are some strict rules under SSI law and under Medicaid regulations that must be considered before making that decision. If the trust is going to buy a house, an experienced Elder Law attorney familiar with governmental benefits should be consulted.
Can a Supplemental Needs Trust buy an automobile or van?
Yes. A Supplemental Needs Trust can buy an automobile or a van, but insurance is often difficult to arrange. It is usually better for the trust to lease the motor vehicle.
Can a Supplemental Needs Trust pay for vacations?
Yes. A Supplemental Needs Trust can pay for vacations.
Can a Supplemental Needs Trust distribute cash to the beneficiary?
Any cash distributed to a beneficiary by a Special Needs Trust will reduce the SSI payment dollar for dollar. If the SSI payment is completely eliminated, Medicaid may be lost. It is not a good practice for a trustee of a Supplemental Needs Trust to distribute cash.
How are Supplemental Needs Trusts taxed?
There are income, gift, and estate tax considerations in establishing and administering a Special Needs Trust. A gift to a Third party created Supplemental Needs trust is a taxable gift for gift, estate, and GST tax purposes. The trust is taxed as a complex trust for income tax purposes. The funding of a self created Supplemental Needs trust is not a taxable gift and the trust is taxed for income tax purposes as a grantor trust (i.e. the income is taxed to the disabled person).
Can the disabled person serve as trustee?
No. The whole premise of a Supplemental Needs Trust is that the beneficiary shall not be considered to have access to the principal or the income of the trust. The assets of the trust are for the benefit of the person with the disability, however, the disabled person has no power or authority to direct the payment of the trust assets.
Can a Supplemental Needs Trust be used by recipients of settlements or personal injury awards?
Yes.
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