How Trusts Benefit PWD

Families of persons with disabilities sometimes face an array of different questions and issues when planning for the future. Among these is how to plan ahead financially for the family member with a disability. The fact is that the majority of people who live with a disability will, at some point in time, need some sort of public assistance. In order to qualify for public assistance, the individual must be or become impoverished, with assets below a bare minimum established by the government (currently $2,000 for SSI and $3,000 for Medical Assistance). And while the services available through public programs may be substantial once the individual becomes eligible, the actual cash benefits are quite minimal, occasionally forcing the individual with a disability to live below poverty level, unable to enjoy a greater quality of life. Family members frequently want to assist the individual by providing additional resources, but are uncertain how, since outright gifts can push the person with a disability above the required asset level, disqualifying them from receiving any government benefits at all. Supplemental Needs Trusts and Special Needs Trusts can be used to benefit people with disabilities by supplementing and managing their resources while maintaining their eligibility for public assistance benefits.



What Is A Trust?

Before diving into the details of Supplemental and Special Needs Trusts, it is helpful to understand the terminology and general concept of a trust. A trust is defined by law as an written agreement in which one party—the trustee—takes legal ownership of any form of property that has been transferred to him/her or it (e.g. a bank) by the person establishing the trust. That establishing person is called the trustor. The property is known as trust principal, or “corpus”. These trust assets are invested and/or managed for the benefit of a third party known as a beneficiary. The trustor can also serve as trustee. The trustee has the highest of legal obligations to manage the property and see that it is used only in a manner, and for the purposes established by the trustor in the trust document.

The trust can be thought of as an empty vessel into which the trustor pours property. The trust can own a variety of assets including bank accounts, certificates of deposit, stocks, bonds, and real estate.



Supplemental and Special Needs Trusts

Expanding on these trust basics, Supplemental and Special Needs Trusts are trusts established to benefit a person with a disability by supplementing the government benefits they receive. Both types of trusts are irrevocable, meaning once established, the trustor cannot change the trust provisions, terminate the trust, or withdraw the trust assets. Despite their many similarities, Supplemental and Special Needs Trust are not exactly the same. The primary distinction is in whose money funds the trust. If the person with a disability is funding the trust with their own assets, such as through an inheritance or personal injury settlement they have received, it is a Special Needs Trust. If the trust is funded with assets belonging to someone other than the person with a disability or their spouse, such as by a parent or grandparent, then it is a Supplemental Needs Trust. The following illustrates a few of the similarities and differences between Supplemental and Special Needs Trusts:

COMPARISON OF SUPPLEMENTAL AND SPECIAL NEEDS TRUSTS

  Supplemental Needs Trust Special Needs Trusts

Use

Pay for needs not provided by government funded programs

Pay for needs not provided by government funded programs

For

Person with a disability under age 65 or who resides in long term care

Person with a disability under age 65

Established by

Someone other than the Beneficiary or spouse

Parent, grandparent, legal guardian or conservator, or court.

Funded by

Someone other than the Beneficiary or spouse or anyone obligated to Beneficiary per terms of settlement or judgment

Assets of the Beneficiary = resources of Beneficiary or spouse (can be assets entitled to but not yet received)

Distribution on Death

To person or non-profit designated by the Settlor

Governmental Agency to reimburse for all Medical Assistance benefits paid to Beneficiary; excess to person or non-profit designated by Settlor.

Purpose

To provide for the supplemental needs of a family member or friend with a disability.

To protect Beneficiary’s assets (resources) for their lifetime use

Legal Authority

Minn. Stat. § 501B.89 and Minn. Stat. § 256B.056, subd. 3b(a) and (b)

42 U.S.C. § 1396p(c ) and (d): Omnibus Budget Reconciliation Act of 1993 (OBRA 1993)

Once you understand the general nature and characteristics of each trust, you can better explore the details of each, beginning with the Supplemental Needs Trust. Remember, the primary differentiating factor is in whose money funds the trust. If the money belongs to someone other than the beneficiary, such as a parent, grandparent, friend, etc., a Supplemental Needs Trust will be established.

Now that we’ve given you the basics we will take a detailed look at the Minnesota Supplemental Needs Trust in part two of this article, to be printed in December, followed by part three which will examine the Special Needs Trust, to be printed in January.