What is a supplemental needs trust?

A supplemental needs trust is a type of spendthrift trust that allows a Trustee with the assistance of a Trust Advisory Committee to make funds available to a disabled person to supplement the benefits that the government is required to provide to disabled individuals who are poor. The government provides funds that are used to pay for basic needs such as food, clothing, and shelter. The Trust funds go to pay for things that improve a disabled person's quality of life such as extra and supplemental:

• medical care;
• health and nursing care;
• dental care;
• developmental services;
• support and maintenance;
• education;
• rehabilitation;
• therapies;
• medical devices;
• recreation;
• social opportunities;
• assistive devices;
• advocacy;
• legal services;
• personal attendant care; and
• consultant services

over and above the benefits the person otherwise receives as a result of his or her disabilities from any local, state, or federal government or from any other private or public profit or nonprofit organizations.

The Trustee is responsible for making the payments for the benefit of the disabled person. In most cases, the Trustee decides how to spend the trust funds based on advice received from a Trust Advisory Committee. This committee usually includes a family member, a person knowledgeable about the requirements of people with special needs, and a third member with special interest or knowledge about the disabled person.

Who needs a supplemental needs trust?

Persons who are severely disabled and unable to support themselves probably would benefit from a supplemental needs trust.

Why should a person who is severely disabled have a supplemental needs trust?

Supplemental needs trusts are set for two primary reasons:

• to preserve the disabled person's eligibility for governmental benefits; and
• to efficiently and economically manage the financial affairs of a person who is disabled.

A severely disabled person could be eligible for local, state and federal benefits such as SSI and Medicaid. To be eligible for those benefits, the person is limited in the amount of liquid resources "available" to him or her. This amount varies from state to state but is generally around $2000. Assets held in a guardianship or conservatorship account are considered "available" to the disabled person for purposes of benefit eligibility determinations and would disqualify the person from receipt of the benefits. Assets held in a properly drafted Trust are not considered "available" to the beneficiary, as title to the assets does not transfer to the beneficiary. The Social Security Administration recognizes and acknowledges this difference.

Eligibility for the two basic Social Security benefits is important for far more than just the monthly income stream provided by SSI. The federal Medicaid budget allocations go to each state to provide ongoing and long-term care for a great number of persons with a wide variety of disabilities. The federal Medicaid budget does not limit expenditures to traditional medical areas. Often included are such things as long-term care and rehabilitation, group home or other living arrangements, sheltered workshops or work activity rehabilitation, and provision for other direct client-centered needs. By maintaining eligibility for SSI and Medicaid, an entire system of state services for social programs, residential alternatives, rehabilitation, and case management is preserved. Most state programs adopt the SSI and Medicaid eligibility criteria for entrance into those programs.

The use of a trust as a financial, investment, and management vehicle is often far more economical and financially advantageous than a guardianship or conservatorship. Ongoing reports to the court are minimized, investment opportunities expanded, and court and attorneys' fees reduced. The trade-off in cost and investment flexibility does not sacrifice security for the beneficiary. The traditional duties of a fiduciary of investment management and disbursements for the beneficiary are split between a corporate fiduciary and a three or four person Trust Advisory Committee comprised of family members and appropriate providers or consultants. The use of a corporate fiduciary as a Trustee responsible solely for financial investment, and a Trust Advisory Committee with responsibility for directing expenditures, creates an internal check and balance system far more responsive than the court review process. In addition, an internal case management team is created by combining a concerned, informed Trust Advisory Committee to direct spending with the financial abilities of a professional Trustee fully subject to the provisions of the state Trust Act and the "prudent person" investment approach.

When can a supplemental needs trust be set up?

There are two principle times when settlement trusts are set up.

Family members of a disabled person may set up a trust as part of the family estate plan. The family wants to help the disabled person by making money available, but it doesn't want to deprive the person of the government resources that are available to help such individuals. If money is given to the person outright, the person is disqualified from government benefits until all the inherited money has been used up. Setting up a supplemental needs trust allows the family to supplement the government benefits with family resources.

When a disabled person receives a personal injury settlement to compensate this person for the injury that caused the disability, this person's attorney or the Court may set up a trust. Concern is sometimes expressed about preservation of government benefit eligibility in light of the receipt of substantial settlement sums. However, unless a disabled individual has been fully and completely compensated with no risk that future medical and ongoing living needs will exceed the underlying settlement, the preservation of potential future government benefits is critical. Furthermore, because of the way the social service delivery system has developed in many states, an individual cannot privately purchase into the same social service systems that could be obtained free through benefit qualification. Many states seek to maintain control over the possible placements in facilities and programs such as group homes, workshops, and vocational rehabilitation services. The only way to maintain control over those facilities and programs is to restrict the clients who can be placed in them. State agencies want to ensure that their clients have a priority for the services. Accordingly, there is often a provision in the state contracts with those facilities and programs that can punish the service providers if they take private paying clients. An injured person could be in the anomalous position of having assets as a result of the settlement, but not being able to use those assets to obtain the services needed to develop the person's remaining capabilities. Thus, the settlement, while it would provide some privately paid services at a very high cost, would preclude this person from receiving the most highly skilled public service benefits available because of the penalties those service providers would have to pay to the state.

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