Different Types of Supplemental Needs Trust

A Supplemental Needs Trust (“SNT’) is a trust created for the benefit of a disabled individual to provide them with financial means without disrupting their eligibility for government benefits requiring limited resources and income like Medicaid and SSI.  There are essentially three types of supplemental needs trusts:  a first-party SNT, a third-party SNT, and a Sole Benefit Trust.  Every SNT has the same goal, which is to supplement, but not supplant, government benefits while providing the disabled individual with the ability to afford things they could not purchase on their government benefits alone.  This may include clothing, entertainment, travel, and other things that can enhance their quality of life.  This article will describe the three main types of SNTs:

A first-party SNT is one that is established with the disabled person’s own assets while they are under the age of 65.  It is most commonly established when the disabled individual receives a legal settlement in an amount that would put them over the resource limit for Medicaid or SSI benefits.  It is also employed in situations where a disabled individual is to receive a direct inheritance (with proper planning, all inheritances to a disabled person should go to a third-party SNT to avoid the “payback” provision discussed below).

The first-party SNT can be established by the disabled person, or their parent, grandparent, guardian or the court.  In the past, the disabled person was not permitted to create their own SNT, but this is fortunately no longer the case and this development empowers disabled individuals to plan for their own futures.  By establishing this type of Trust, the assets the SNT contains will not be a countable resource for Medicaid eligibility purposes, however, the SNT must contain a “payback” provision that states Medicaid will be paid back at the end of the beneficiary's life for the cost of any care expended for them.  After Medicaid has been paid back, the trust can dictate who will receive the remainder of the assets.

A third-party SNT is created with a third party’s assets (usually a parent’s or grandparents’) for the benefit of a disabled person.  There is no age restriction associated with a third-party SNT.  The grantor (the person providing the funds) may create this trust while they are alive, or they may do so at their death through a testamentary trust (a provision in their Last Will and Testament).  This type of trust has no “payback” requirement and the trust’s creator is allowed to determine what happens to the trust’s remainder at the end of the beneficiary’s lifetime.

The sole benefit trust is established for the benefit of a disabled beneficiary and has the dual purpose of protecting the trust assets from becoming a countable resource for both the grantor and the disabled beneficiary for Medicaid purposes.  This makes it a good “crisis planning” tool in the event an older individual needs to apply for Medicaid without ever having done any asset protection planning.

A sole benefit trust uses a third party’s assets to benefit a disabled person who is under 65 years of age or a disabled child of the grantor of any age.  This type of trust requires that actuarially sound distributions be made to the beneficiary during their lifetime and that the remainder be left to the beneficiary’s estate thereby allowing Medicaid to seek to be paid back.

Leaving assets to a disabled individual is a complicated process that depends on many factors including the type of benefits the disabled person receives or hopes to receive in the future.  You should contact an experienced Supplemental Needs Trust Attorney to assist you in planning for the future of a disabled loved one.

This article is for educational purposes only - to provide you general information, not to provide specific legal advice.  Use of this post does not create an attorney-client relationship and information contained herein should not be used as a substitute for competent legal advice from a licensed attorney in your state.

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