The Supplemental Needs Trust
Updated: Sep 6
We, at times, have clients with children or other loved ones that are receiving government benefits due to a disability. If those benefits are needs based, special planning is necessary to assist the disabled person but not create a situation where your loved one is no longer eligible for government programs. It is important that a disabled person not be removed from government programs as many of these are not available to private paying individuals (such as group home settings and vocational training). There are several planning tools that can and should be utilized, most importantly among these is the supplement needs trust, also called a special needs trust, or SNT.
The purpose of such a SNT is to benefit the disabled person and provide for their “supplemental” needs (hence why we prefer the term “supplemental needs trust”). What is supplemental? Anything that is not covered by government funding. If the trust provides for items a government program will pay for, then the trust assets may be included in the disabled persons asset review and possibly disqualify them from receiving benefits. Therefore, the SNT is restricted to pay only for those items that government programs will not cover. Thus, a SNT can pay for trips, entertainment, clothes, etc. It can even own a home for the disabled person and rent it to them or pay for educational opportunities beyond those provided by government programs. It is a versatile tool that needs to be part of planning for every person with a disabled loved one.
There are multiple types of SNTs. Often you will see “stand-by” SNTs in living trusts to provide for using a SNT when a beneficiary becomes disabled after the living trust is created. Parents of disabled children often use lifetime SNTs that own an insurance policy to be paid at the death of a parent assuring that the disabled child will have a source of funding into the future. Lastly, there are self-settled SNTs where a disabled person creates the trust for assets owned by the disabled person. This is especially useful if the disabled person receives an unexpected inheritance or a court settlement. These self-settled SNTs have special rules (for example, any remaining funds must first be used to repay lifetime government benefits and there is an age restriction) and governed by the Social Security Administration regulations and so need to be carefully crafted.
If you have a need for planning for a disabled loved one, consider using the supplemental needs trust as part of your planning tools.