Supplemental Needs Trusts

Later this month, Special Needs Trusts will be discussed in some detail. Today we’ll discuss Supplemental Needs Trusts. Oftentimes, these two types of trusts are confused because their purposes are somewhat similar, but how each is funded and created and what will happen upon each trusts’ termination are quite different.

Beneficiary

Like a Special Needs Trust, a Supplemental Needs Trust serves to benefit a person with a disability by supplementing the government benefits he or she receives. The trust is used to protect financial resources for a person with a disability who is receiving or will be receiving publicly funded benefits. Both the income and principal of the trust may be used by the trustee to augment the government benefits received by the person with a disability – for expenses like more rehabilitative, recreational or education aid not provided by government assistance. However, the trustee must first rely upon government benefits before making distributions. The trustee is authorized to make distributions only when the benefits from these programs are insufficient to meet the needs of the beneficiary.

Assets

Unlike Special Needs Trusts, these trusts may be created by anyone other than the individual with disabilities or anyone with a legal obligation to support the beneficiary. Oftentimes the trust grantors are parents, grandparents or other family members of the disabled beneficiary.

The Supplemental Needs Trust must be for the beneficiary’s sole benefit. This means that all goods and services purchased from the trust must be purchased for only the benefit of the beneficiary; no other individual or entity can benefit in any way from the assets or income at the time of a transfer or at any time in the future.

Upon the death of the beneficiary, the remaining assets of the Supplemental Needs Trust are distributed according to the provisions set forth in the trust as determined by the Grantor. This might include distributions to other children or grandchildren or non-profit organizations.

Most parents establish a Supplemental Needs Trust on a testamentary basis in a Will to take effect when one or both parents are deceased. However, many experts suggest creating Supplemental Needs Trusts much earlier to understand how they work and to build on the assets through investments. There is no minimum financial requirement for establishing a Supplemental Needs Trust.

Trustee

As with Special Needs Trusts, the disabled beneficiary cannot be trustee. Instead, another person should be trustee. An effective trustee of a Supplemental Needs Trust should:

• Be familiar with the beneficiary’s disability, including his or her medical history, required medications and treating physicians
• Have an understanding of the beneficiary’s special needs, including assistive equipment, dietary requirements, etc.
• Be experienced in the establishment, maintenance and ongoing operation of the trust, including the rules relating to federal and state benefit eligibility
• Have an understanding of state law as it relates to the Supplemental Needs Trust
• Have strong money management skills

Family members are a good choice for trustee because they are often most familiar with the beneficiary’s needs. If a beneficiary has no family or close relatives available or the duties and responsibilities would be overwhelming and unmanageable for the family members, professional fiduciaries are available to serve as trustees.

Regardless of whether a Special Needs Trust or a Supplemental Needs Trust is utilized, be sure to contact your local attorney to determine the one that is right for you.