Supplemental or Special Needs Trusts

My name is Lee Franks, and I am an elder law attorney serving the Texas Panhandle area down into the Trans Pecos. My partner, Laura Beth Pleasant, and I work in Medicaid planning, guardianship, disability planning, estate planning, probate, and related areas of law.

I decided to start blogging about what we do, because I have learned that while a fair number of folks have at least some familiarity with estate planning, probate, and even guardianships, almost no one knows anything at all about long term care Medicaid or supplemental needs trusts and disability planning - and those who know anything at all about Medicaid or disability planning mostly have it wrong.

Today, I want to begin a series of posts about supplemental needs trusts, aka special needs trusts or SNTs, primarily because the people who need them the most, people with disabilities and their caregivers, know so little about them and cannot find anyone who does.

First a little background: A trust results from an agreement (almost like a partnership results partnership agreement) between a creator, usually called a trustor, grantor, or settlor, and an administrator, uniformly called a trustee. The trust owns property (similar to the way a partnership does) which the trustee manages, grows, and protects as permitted or directed by the trust agreement. And the trustee distributes property to or for a beneficiary as permitted or directed by the trust agreement.

In short, a trust is created by an agreement between a trustor and a trustee to own property managed by the trustee and distributed by the trustee to or for a beneficiary according to the trust agreement. Within legal limits and some public policy constraints, a trustor and a trustee can create a trust for just about any purpose so long as there is a trustor, trustee, property, terms regarding the use and distribution of the property, and a beneficiary.

Even so, trusts fall into common categories because trustors and trustees often have common purposes, e.g., to avoid taxes or probate, to protect a spendthrift child, to take advantage of particular laws, or to shield property from creditors.

As to SNTs, they exist to own and manage property that the trustee can use to supplement, but not supplant or replace, social security benefits, Medicaid coverage, and other means-tested assistance that may be available to a beneficiary. Property owned by an SNT does not count against a beneficiary’s resource or asset limit for means-tested programs.

SNTs come in two types, and the source of the property to fund the SNT determines the type. If the property originally belonged to the beneficiary AND the beneficiary has not reached the age of 65, the beneficiary may put his or her own property into a “self-settled supplemental needs trust” under 42 USC 1396p(d)(4)(A). You may see why some folks refer to them as d4A trusts. Critically, d4A trusts must contain a provision, often called a “claw back provision” repaying the state or states, if more than one, for products and services rendered through certain state or state administered programs.

The other SNT type involves other people’s money or property and requires no claw back provision. Referred to generally as “third party supplemental needs trusts,” the property may come from anyone other than the beneficiary. Aside from granting the trustee absolute discretion to distribute any amount or none at all for or to the beneficiary and foreclosing any interference or control by the beneficiary, third party SNTs have few standardized provisions.

That’s all for today, but for the disclaimer:

All information presented here is educational and does not constitute advice or endorsement of any particular course of action. Complex information is presented here in summary form which necessarily represses multiple details and nuances. And, you are not my client until I agree to represent you, in what capacity that representation will occur, and the scope of the representation will be.