How can a Special Needs Trust assist my client who has a disability? A Special Needs Trust (SNT) provides for the maintenance of an individual with disabilities by supplementing, rather than replacing, government benefits. It can be either self-settled Trust (their own money) or third-party (someone else’s money) for the individual with a disability, in order to pay for necessities, while maintaining eligibility for government need-based benefits.

Avoiding Legal Malpractice

Loss of benefits resulting from failure to create a self-settled trust will constitute legal malpractice. Using a Special Needs Trust where appropriate in a personal injury case is necessary. In a Texas case, a plaintiff’s attorney and the guardian ad litem paid $4.1 million in a malpractice settlement for failure to establish an appropriate trust. There have been numerous other cases throughout the country with similar liability. An SNT can be used to hold structured settlement payments in personal injury cases where the beneficiary has a disability and is eligible for benefits.

An SNT is distinguished from other trusts in that it is supplemental, rather than supportive. Distribution restrictions apply to an SNT. The trustee of an SNT should have full discretionary distribution authority as certain distributions will cause the beneficiary to lose government benefits. The trust must be valid under state law and must be created by a valid trust document. The trustee holds fiduciary responsibility to manage the trust’s principal and income for the beneficiary.

Who Establishes the Trust?

For self-settled SNTs involving certain public benefits programs, typically SSI and Medicaid (MassHealth), an SNT is established on behalf of the individual who is on MassHealth or who has a disability, by the individual, the individual’s parent, grandparent, legal guardian or the court. These trusts are funded with assets belonging to the beneficiary. Third-party SNTs are established by any third party with funds belonging to anyone other than the beneficiary; typically a parent or grandparent. Third party SNTs have greater latitude of terms.

Payback Provision

Federal Medicaid law requires that the state receive all amounts remaining in a self-settled SNT (First Party) upon the death of the individual, up to an amount equal to the total Medicaid payments. Massachusetts requires that any MassHealth liens be satisfied prior to funding the trust. Insurance subrogation, Medicaid, and hospital liens must also be satisfied, if applicable.

There is no pay-back required for third party SNTs.

Source of Funds for First Party Trusts

Federal law allows a self-settled trust to be funded with any property owned by a beneficiary.

Irrevocability and Distributions

The self-settled SNT must be irrevocable in order to comply not only with SSI rules, but also federal and Massachusetts Medicaid rules. These trusts require that distributions be made at the discretion of the trustee and be limited to distributions that supplement, and not supplant, public benefits. Additionally, SSI Beneficiaries can receive not more than twenty dollars cash per month.

Requirements for an Under Age Sixty-Five Special Needs Trust

The individual must be under the age of 65 at the time the self-settled trust is established. After the client reaches the age of 65, the trust continues as to assets or structured settlements transferred into it before that age. Assets cannot be added after age 65.

Requirements for an over age sixty-five Special Needs Trust

Federal and State law will not permit the individual to choose a Trustee if the individual is over age 65; rather their funds are managed with a pool of other seniors in a ‘Pooled Trust’ where the Trustee is a non-profit agency.

Does Divorce Terminate More than the Marriage?

Divorce may affect the public benefits received by a person with a disability. The complexities of public benefits interpretation require an attorney who focuses on public benefits and special needs trusts. Alimony and child support must be ordered by the Probate Court to be paid directly to the Trust, not the individual.

What Happens to the Trust When My Client Dies?

A Special Needs Trust is not part of the Probate estate and, in Massachusetts, it does not require a Probate Court to transfer ownership to the beneficiaries. However, careful attention must be made in determining Medicaid’s pay-back interest in any asset remaining in the self-settled SNT upon the death of a beneficiary. A third-party trust will not require a Medicaid pay-back.

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