In terms of the similarities, both of these types of trusts are set up to benefit a person with disabilities and have the same general eligibility requirements for a person to be made a beneficiary. An eligible beneficiary is an individual with a disability who qualifies for public assistance under a benefit program like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and Medical Assistance.
In order to qualify for these programs, the recipient cannot own resources or countable assets over a certain threshold. This is because these assets could be liquidated to pay for basic needs like food and shelter, although some assets, like a home, reasonably valued vehicle and prepaid burial or cemetery lot are exempt. To maintain eligibility for these programs, a legal instrument is needed to protect non-exempt assets from being counted as available assets to pay for basic needs. Under both federal and Minnesota law, the assets of a Supplemental Needs Trust and Special Needs Trust will not be deemed to be available assets or countable for eligibility determinations by SSI, SSDI or Medical Assistance.
In terms of how these types of trusts are funded, the Special Needs Trust is set up using the assets of the proposed beneficiary while the Supplemental Needs Trust is set up using the assets of someone other than the proposed beneficiary, such as a parent, grandparent or sibling, but it could be anyone. Once either trust is established, contributions can be made from any source and IRAs, life insurance plans and the estate plans of family and friends may designate the trust as a beneficiary, but such contributions are irrevocable. In addition, both types of trust will have a tax identification number and the trustee must file a tax return if the trust has income over $100.00.
Both trusts operate in the same way during the lifetime of the beneficiary. The trustee may only use the asset to pay for things that are not covered by public assistance benefits. So, for example, the trustee could use the assets for entertainment or travel for the beneficiary or to purchase advanced medical equipment or medical or dental care for the beneficiary that Medical Assistance will not cover. Despite this broad discretion, there are some important limits to note. Payments from the trust must solely benefit the beneficiary and payments must never be in cash. Instead, the trustee must pay the vendor directly for the expense.
Once the beneficiary has died, the remaining assets of the trust, if any, are treated differently depending on whether the trust is a Supplemental Needs Trust or a Special Needs Trust. The remaining assets of a Supplemental Needs Trust are distributed in accordance with the direction set forth by the person that established the trust, while the remaining assets of a Special Needs Trust must be used to pay back Medical Assistance or another funding source. However, Medical Assistance or another funding source is limited to recovering the remaining trust assets and only what they are owed.
Because the requirements of both a Supplemental Needs Trust and Special Needs Trust are very strict, it is important to speak with an experienced estate planning attorney about your specific situation. To speak with an experienced estate planning attorney regarding a Supplemental Needs Trust and Special Needs Trust, contact Tentinger Law Firm at 952-953-3330 or use our quick contact form.