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Friday, June 19, 2015

Improving the Life of a Disabled Loved One: First Party vs. Third Party Supplemental Needs Trust

If you have a loved one with a disability, their life can be significantly improved with additional funds (think of non-generic medicine, vacation, additional home care, specially outfitted car, etc).   Supplemental Needs Trusts are set up for people with disabilities. The purpose of this type of a Trust is to supplement, not to supplant the government benefits to which the beneficiary may be entitled. If drafted properly, the assets and income of these trusts are treated as “exempt” by the agencies providing means tested benefits.  

There are two main types of Supplemental Needs Trusts.

First Party Supplemental Needs Trust holds the property of the person with disability (usually the funds come from an inheritance or a personal injury settlement). There are very specific criteria about the creation and administration of this type of a Trust. The assets must come from a beneficiary who is under the age of 65. The beneficiary must be disabled, as defined in the Social Security Law. The Trust must be established by a parent, grandparent, legal guardian or court order. Finally, the Trust must contain a ‘payback’ provision: upon the beneficiary’s death, all remaining assets must be used to repay the state Medicaid program for any assistance provided.

 

Third Party Supplemental Needs Trust holds the property of a ‘third party’ – a parent, a grandparent, a relative or a friend of the disabled beneficiary. There are fewer restrictions about the creation of this Trust. The beneficiary must be disabled. However, there is no ‘payback’ requirement: upon the beneficiary’s death the remaining assets may be distributed to another person. In addition, just like with the First Party Supplemental Needs Trust, the drafting language must remain very precise. Many Supplemental Needs Trusts have been disqualified, and the assets were considered available to the beneficiary, because of the imprecise language used by the attorneys. See my previous post about a trust that was not considered a proper Special Needs Trust by a court. http://sverdlovlaw.com/lawyer/2015/04/07/Children/The-importance-of-Using-the-Proper-Language-When-Setting-up-a-Special-Needs-Trust_bl18479.htm

 

Disclaimer: This article only offers general information.  Each situation is unique. It is always helpful to talk to a specialized attorney, to figure out your various options and ramifications of actions.  As every case has subtle differences, please do not use this article for legal advice. Only a signed engagement letter will create an attorney-client relationship.

 


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