Special Needs Trusts

Pabian & Russell’s attorneys work closely with each client to determine which type of trust is best for their and their family’s unique situation. Our attorneys are also available to assist trustees with complex issues related to trust distributions, tax filings, and accounting requirements for public benefits programs.

Third Party Trusts

Third party trusts are created by one person, usually a parent, for the benefit of a disabled person. These trusts must be clearly discretionary in nature and not be a support trust. Additionally, the trust should name a remainder beneficiary other than the estate. The trust may be revocable or irrevocable.

Sole Benefit Trusts

This trust is also for the benefit of someone else, but used in situations where the grantor is seeking Medicaid eligibility himself or herself. The beneficiary must be under age 65. The trust must only be for the benefit of the disabled beneficiary. In many states, at the beneficiary’s death, the trust must be payable to his or her estate or to the state, to the extent of Medicaid payments made on the beneficiary’s behalf. This may make the trust countable with respect to the beneficiary’s SSI benefits. This trust must be irrevocable.

Self-Settled Supplemental Needs Trusts

Until January 1, 2000, an SSI beneficiary could create a supplemental needs trust for his or her own benefit without incurring a period of ineligibility. This is no longer true. However, an irrevocable, self-settled trust may be useful in some situations for clients receiving only specific benefits, such as subsidized housing.

(d)(4)(A) or Pay-Back Trusts

A self-settled trust under a “safe harbor” for purposes of Medicaid eligibility, this trust must be created by a court, guardian, parent or grandparent and can provide discretionary income and principal to the recipient. The beneficiary must be under age 65 when the trust is created and funded. The trust must provide that the remaining trust funds at the individual’s death first be applied toward reimbursing the state for its Medicaid expenditures. Notably, only Medicaid will be reimbursed under a (d)(4)(A) trust. The trust need not provide for reimbursement of SSI. Thus, if there are no substantial Medicaid expenditures, the remaining trust funds may pass to whomever the client designates, just as before the new law.

(d)(4)(C) Trusts

A (d)(4)(C) trust is a pooled trust for disabled individuals that is established and managed by a non-profit association. Separate accounts are managed for each beneficiary and the account may be established by the client or by a parent, grandparent, legal guardian or court. In contrast to a (d)(4)(A) trust, funds remaining at the death of the beneficiary may stay in the pooled trust for the benefit of other trust beneficiaries rather than being paid to the state. To the extent amounts remaining in the individual’s account at death are not retained by the trust, the trust must reimburse the state for all medical assistance paid. Although a (d)(4)(C) trust is an option for a disabled individual over age 65 who is receiving Medicaid, the new law only permits SSI recipients under age 65 to make transfers to the trust without incurring a transfer penalty.

Disclaimer: Material presented on the Pabian & Russell, LLC website is intended for information purposes only. It is not intended as professional advice and should not be construed as such.