Special Needs Trust

When we represent survivors of catastrophic injury such as traumatic brain injury and quadriplegia, our work is not complete until we set up the means to protect and administer the client’s money over the course of a lifetime. As soon as we see that the funds are likely to be substantial, we begin laying the groundwork for protection of resulting assets very early in the case, sometimes associating a special needs trust law specialist from the beginning at no additional cost to the client. One of the tools we often use is a Special Needs Trust or Supplemental Needs Trust.

For example, in a recent traumatic brain injury case, we brought in a disability benefits and trust law specialist to work with us from the week I was hired, while the client was still in a coma in ICU at the first hospital. Upon determining that the person at fault for the injury had sufficient insurance and assets to somewhat adequately address the scope of the injury, we had this specialist handle Probate Court appointment of the incapacitated adult client’s parents as guardians of the person and property, working closely in conjunction with the adult client’s significant other.

Then, when we got close to settlement, we worked with the specialist to present the family a couple of qualified options for administration of a Special Needs Trust. We spent several evenings at their home working through wants and needs for the “new normal” in the client’s life, including the idea of having the trust purchase a home and vehicle where the client’s significant other would be able to serve as his primary caregiver while the trust handled the money. Upon settlement of the case we got court approval of both the settlement and establishment of the trust.

A Special Needs Trust (also called “Supplemental Needs Trust”) as used in settlement of injury cases is designed to improve the quality of the beneficiary’s life while preserving eligibility for government benefits such as Medicaid, Social Security Disability Insurance (SSDI), vocational rehabilitation, subsidized housing, and other benefits based upon financial need. A Special Needs Trust provides for care and supplemental needs over and above that which any government program provides.

It is a form of “First Party” trust, meaning that is funded by the person or company at fault for the disabling injury, or their liability insurance company.

Prior to 1993, Special Needs Trusts were based upon case law. The Congress in 1993 inclkuded in the Omnibus Budget and Reconciliation Act (OBRA-93) specific authorization of Special (or Supplemental) Needs Trusts for the benefit of individuals who are under the age of 65 years and disabled according to Social Security standards.

The Social Security Operations Manual authorizes the use of Supplemental Needs Trusts to hold non-countable assets. Each Special Needs Trust is an “entity” with its own Federal Identification Number (Employer Identification Number) issued by the IRS. The Trust is not registered under either the Grantor’s or the Beneficiary’s Social Security Numbers.

Under federal law, a Special Needs Trust is to provide for “supplemental and extra care over and above what the government provides.” Typically, such a trust includes a “sliding scale” so that the government provides for 100% of the disabled person’s needs the Trust will provide 0%, but if there are no governmental benefits available the trust could provide 100%. Since most disabled people are somewhere between those two extremes, the trust supplements governmental disability and medical benefits.

There are Medicaid rules that say a Special Needs Trust cannot not be used for housing or food. However, the trust may purchase an accessible home or pay for accessibility adaptations to an existing home. Similarly, while a trust does not pay for ordinary groceries, it may pay for social events, dinners, vacations and entertainment.

As Medicare has become more aggressive about seeking reimbursement without releasing any regulations or clear guidance about when a Medicare Set-Aside Account (MSA) may be required, one approach that has evolved is to include a provision in the Special Needs Trust document to provide for reimbursement of Medicare as well as Medicaid upon the beneficiary’s death, in lieu of establishing a separate Medicare Set-Aside Account. In the absence of guidance from Medicare, this seems like a reasonable approach.

A Special Needs Trust should include the following provisions: (a) it is irrevocable but may be terminated, dissolved or amended under defined circumstances; (b) a reference the Social Security Operations Manual provisions that authorize the creation of the Trust; (c) provision for reimbursement of Medicare or Medicaid if required upon the death of the beneficiary; (d) a reference to the Omnibus Budget and Reconciliation Act (OBRA-93) provisions which authorize the creation of the Trust, and a copy of the relevant provisions from the United States Code.

When the amount of money going into a Special Needs Trust is large, we work with the client’s family to select a professional administrator who is specifically experienced in working with special needs trusts for disabled people. It is not something for which you would want to choose a regular financial planner or bank trust department. Most recently, clients have tended to choose a locally-based company that works almost exclusively with catastrophic injury victims nationwide.

It is possible to fund a Special Needs Trust with a structured settlement annuity, but with interest rates still at historically low levels we seldom see this recommended by financial planners.

When the amount going into a Special Needs Trust is too small to be practical for handling by a corporate fiduciary, we might use a pool trust such as the Georgia Community Trust. t can economically administer amounts that corporate fiduciaries typically will not touch and charges a minimal amount per year for funds administration. There are pros and cons to use of a pooled trust, but sometimes it is the only thing that makes sense.

In the past, we sometimes went along with client desires to have a family member appointed as trustee of the Special Needs Trust, we do not now recommend that, no matter how competent and well-meaning they may be. If anything can go wrong in that situation, it will. It is far more prudent to use a professional fiduciary to administer a Special Needs Trust.

Special / Supplemental Needs Trusts also have extensive uses outside the personal injury settlement context. In the estate planning context, parents or grandparents of children who have special needs may include such a trust in their estate plan in order to assure that the special needs of a disabled child are addressed. Similarly, a person whose spouse is disabled and has special needs might include arrangements for such a trust in his or her estate plan to assure that in the event of his death, the surviving disabled spouse would be cared for.

Although there are several different types of SNT’s, they all have one thing in common: if they are drafted correctly, they can be used to protect assets in order to maintain eligibility for needs-based benefit programs like Medicaid and Supplemental Security Income.