By Joe Rosenberg, Professor of Law, CUNY School of Law
What You Need to Know
Who Needs a Supplemental Needs Trust?
• Miguel is 50-years-old and receives SSI, Medicaid, and SNAP (Food Stamps). Miguel is about to receive a $50,000 settlement from a discrimination lawsuit against a former employer who fired Miguel after the employer learned he had schizophrenia.
• Sonja is 35-years-old and suffers from depression. She receives SSI, Medicaid, and a Section 8 housing subsidy. Sonja’s mother died recently, and left a will that gives Sonja $100,000.
• Ella is 60 years old and became eligible for Social Security Disability due to mental health problems after many years of employment. Ella receives Medicare, but now needs a level of home care that is available from Medicaid. Ella is not eligible for Medicaid because she has excess monthly income above the Medicaid level.
These are a few examples of when a supplemental needs trust (“SNT”) can be used by a person who receives government benefits:
• If Miguel transfers his settlement money into an SNT, he will remain eligible for SSI and Medicaid. Miguel will also be eligible for SNAP, whether or not he uses an SNT, because in New York, SNAP does not count a person’s assets.
• If Sonja transfers her inheritance money into an SNT, she will remain eligible for SSI and Medicaid. Sonja will be able to keep her Section 8 benefit, but may have to pay a small monthly increase in rent.
• Ella can transfer her “excess income” each month into a supplemental needs trust to satisfy her “spend down,” become eligible for Medicaid, and have the extra income used for her benefit by the trustee.
How Does the SNT Work?
The trustee manages the trust, which directs how distributions are made to improve the beneficiary’s quality of life. The trustee usually makes payments directly to providers of goods and services to the beneficiary. The trust is used to pay for basic needs not covered by government benefits and anything else that will improve the beneficiary’s quality of life (for example, “extra” health care, housing, travel, personal care, computers, and education).
The trustee does not make payments directly to the beneficiary. If the beneficiary needs services beyond what Medicaid covers, the trustee pays the provider directly. The SNT is not considered an “available” asset and the beneficiary maintains eligibility for government benefits.
If the trustee pays money directly to the beneficiary, it would be counted as income, which might affect the beneficiary’s eligibility for government benefits.
What is the Difference Between “Pooled” & “Individual SNTs?
There are two main SNT “structures”:
• A “pooled” SNT is for people with disabilities of any age. A nonprofit organization establishes and manages the trust. Each beneficiary has an account within the “master” pooled trust.
• An “individual” SNT is limited to people with disabilities under age 65. An individual trust document must be drafted. Unlike the pooled SNT, a responsible person or bank/trust company must be selected to serve as trustee.
Who Funds the SNT? “Self-Settled” & “Third Party” SNTs
There are two main types of SNTs:
• A “self-settled” SNT is funded with money or property that is owned or controlled by the beneficiary (for example, a settlement from a lawsuit, or an inheritance). The beneficiary is considered to "own" the money that will fund the trust, so it is necessary to use a self-settled SNT. A transfer of money or property into the SNT does not create a “penalty period” of ineligibility for SSI or Medicaid, unless the beneficiary is over 65 and applies for Medicaid nursing home coverage within 60 months of the transfer.
• A self-settled SNT can be created by the beneficiary (if the person has enough decision-making capacity), or by a parent, grandparent, legal guardian, or a court.
• A “third party” SNT is funded with money or property from someone other than the beneficiary (for example, a family member or friend). The beneficiary does not own the money used to fund the trust. A parent creates a third party SNT when the parent includes the SNT in a will that takes effect when the parent dies.
Is There a Medicaid “Pay Back” from the SNT Remainder?
With an individual “self-settled” SNT, there is a required “pay back” to Medicaid from any remaining assets when the beneficiary dies (up to the amount paid by Medicaid for the beneficiary). With a pooled SNT, there is an option to keep any remaining money in the pooled trust when the beneficiary dies, instead of the “pay back” to Medicaid.
A third party SNT, because a parent or other person (not the beneficiary) creates and funds the trust, does not have a required “pay back” to Medicaid. The creator of a third party SNT can choose who gets any remainder after the beneficiary dies.
Does a Person Need a Lawyer to Create the SNT?
I recommend that a person work with a lawyer, who should be able to explain options and help the client make informed decisions.
For example, a lawyer can help under the following circumstances:
• A parent or grandparent is doing “estate planning” and wants to provide for a child or grandchild (or other relative or person), but does not want to cause the beneficiary to lose eligibility for government benefits.
• A person receiving SSI and Medicaid inherits money from a relative or friend, or receives a lump sum settlement from a personal injury, discrimination, or other case, and needs to protect the money without losing the government benefits.
The cost of setting up an SNT will vary, depending on the amount of money involved, the type of SNT, and if a person needs to create a new SNT or can establish an account with a pooled SNT.
Private attorneys who specialize in Elder Law, Disability Law, or Wills, Trusts & Estates, may have the necessary expertise. A private attorney may charge anywhere from $1,500 to $5,000 (or more) for an SNT.
Local legal aid, legal services, and bar associations may have referral services for pro bono or more affordable attorneys.