In elder law and special needs planning, attorneys work with clients to determine whether a Supplemental Needs Trust is a recommended planning tool. 

A Supplemental Needs Trust, which is also referred to as a Special Needs Trust, is a uniquely designed trust that is intended to hold current assets or future assets for the benefit of a disabled person. When the disabled beneficiary of the trust lacks the ability to manage his or her own affairs, the Supplemental Needs Trust allows for a pre-designated person to proactively manage those financial assets.

Disabled people may be eligible for certain government benefits, such as Supplemental Social Security or Medicaid. A person’s eligibility for many of these benefits are asset-tested, meaning the recipient may be disqualified from receiving these benefits if that person has too many assets or receives too much monthly income.

However, a Supplemental Needs Trust can hold and manage those assets. Because the assets are held in this Supplemental Needs Trust, a disabled person’s eligibility for certain government benefits will not be compromised. 

Further, the assets are not available to creditors in the unfortunate event that the beneficiary is ever sued. The Supplemental Needs Trust can also serve as a source of funds to pay for goods and services that are not provided by governmental programs. Some of these specialized services may include medical services, travel to visit relatives, specialty medical equipment like hospital beds or handicapped accessible vehicles, or enrichment experiences, all of which enhance the quality of life of a disabled individual.

A Supplemental Needs trust can be established with assets belonging to a disabled person for that person’s own benefit. In these scenarios, a disabled person may have inherited money or received significant settlement funds from a lawsuit. Typically, these self-settled Supplemental Needs Trusts must be irrevocable and cannot be revoked or amended. This particular self-settled trust must also contain a Medicaid “payback” provision.

Parents of disabled children – and, sometimes, grandparents or other third-parties – often turn to Supplemental Needs Trusts to provide for a disabled individual. Many parents are concerned that if their disabled child inherits assets, the child could fail to qualify for benefits and could have difficulty managing the inheritance. Even if a disabled child is not expected to qualify for public benefits, many private programs that serve disabled individuals rely upon the same strict rules upon which government programs are based.

Parents of disabled children, perhaps like children with autism or mental retardation, can create and fund this Supplemental Needs Trust through estate planning documents. Alternatively, parents of a disabled child can create a separate standalone Supplemental Needs Trust outside of an estate plan. One advantage of creating the Supplemental Needs Trust through a third-party is to eliminate the need for the Medicaid payback provision.

Parents sometimes opt against a Supplemental Needs Trust based on the belief that they can leave their estates to a non-disabled sibling with an instruction that the sibling will use the assets to care for the disabled child. However, this concept is generally not recommended because there are no strong legal protections in place to ensure this objective is carried out. 

Generally, a Supplemental Needs Trust should be established no later than the beneficiary’s 65th birthday. Once a Supplemental Needs Trust is created, it can be funded by transferring assets to the trust. In a properly drafted Supplemental Needs Trust, the assets are not countable against the disabled person’s assets qualification for public benefits. 

Commonly with Supplemental Needs Trusts, there are specific directions on how the trust can distribute money so as not to jeopardize the beneficiary’s entitlement to benefits. The provisions are based on the complex rules regarding distributions set in place by government programs.

Those interested in Supplemental Needs Trusts should carefully review their options with an experienced elder law or special needs attorney.

Kara Gansmann is an attorney in the Wilmington office of Cranfill Sumner & Hartzog LLP, where her practice encompasses elder law and estate planning. Kara advises individuals and families with estate planning needs and asset protection tactics. In this role, she strategizes with clients to preserve assets for long-term care and to leave legacy gifts to family members. Kara works with elderly clients in need of Medicaid crisis planning and Medicaid applications. As part of her practice, Kara drafts wills, trusts and powers of attorney. In the courtroom, Kara represents clients in the administration of estates, guardianship/incompetency proceedings, and guardianship administration. Kara also litigates estate and trust matters, including will caveats, the modification or termination of trusts, and litigation arising from estate documents or fiduciary roles. She is a member of the North Carolina Bar Association Elder Law and Special Needs Section and serves as co-chair of the CLE Committee for that section.  Kara also serves as a liaison between the North Carolina Bar Association Elder Law and Special Needs Section and the North Carolina Bar Association Estate Planning and Fiduciary Law Section.