In general a Supplemental Needs Trust (SNT), sometimes referred to as a Special Needs Trust or Safe Harbor Trust, is a mechanism to protect a person’s financial assets when one needs to apply for Medicaid and/or other types of aid that center on a person’s level of financial need.
A SNT works similar to a credit shelter trust. If a husband and wife divide community assets equally at the death of the first spouse, the surviving spouse receives some of the assets outright but the remainder goes into the trust. The trust assets avoid estate tax on the death of the second spouse. The same events will occur with the SNT as with the Credit Shelter Trust only you will not only avoid taxes but increase the odds of qualifying for Medicaid or other benefits. Normally spouses should consider a SNT if there is a combined estate worth between $100,000 to $1.5 million. Estates within this range can be vulnerable to depletion due to long term medical costs.
The SNT is designed to supplement the public benefits, namely Medicaid, Supplemental Security Income (SSI), and Section 8 Housing, received by disabled adults. These benefits, however, typically provide only for a disabled person’s minimum necessities. A properly drafted SNT can greatly enhance the quality of life of an individual with a disability and limited resources.
Eligibility for public assistance programs generally requires that an individual be disabled as defined by the Social Security Administration and have very limited resources: usually less than $2,000. If an individual who receives public benefits holds resources in excess of $2,000, their eligibility for public benefits may be jeopardized.
A disabled individual can keep their resources over $2,000 if placed in a Supplemental Needs Trust. The trust can pay for supplemental care that is not provided by public benefits such as housekeeping; telephone service; personal items; entertainment; personal services; repairs and maintenance; disability/geriatric case management evaluation and services; luxuries; training; education; outings; vacations; fuel; travel and transportation; vehicles; costs to make vehicles and facilities accessible; companion services expenditures so that family and friends can visit; funeral and burial; dental care; and speech, physical and other therapies.
On the death of the first spouse, some or all of the deceased spouse’s assets will pass into the SNT. The SNT will be for the benefit of the surviving spouse. During the surviving spouse’s lifetime, funds in the SNT will be used for the above mentioned needs (as well as others). When the surviving spouse dies, the trust is distributed to the contingent beneficiaries you select, normally children and grandchildren.
While there are several different types of SNT’s, this article is focused on a “third-party trust.” This means the trust is funded by someone other than the beneficiary, i.e., the deceased spouse. This trust would normally be part of each spouse’s Will. Generally, in Washington State you cannot use a Revocable Living Trust to create this type of plan for a spouse.
The language used to create and administer this type of trust is relatively complex and the laws change frequently. If you believe this type of planning is right for you, please give us a call.
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