With proper planning, Supplemental Needs Trusts and Special Needs Trusts allows a disabled family member to have a source of funds that can benefit his or her life while allowing the beneficiary to qualify for governmental benefits such as Medicaid and Supplmental Security Income.
There are two types of special needs trusts. The first trust is a Third Party Supplemental Needs Trust. This type of trust cannot be funded with the disabled individual’s assets and must be funded with assets of a third party, such as parents or grandparents. The trust is intended to supplement governmental benefits and must be strictly administered. The trust cannot distribute funds for any benefits that Medicaid or SSI covers, but the money can be available to make the beneficiary’s life better. For instance, the trust cannot pay for the beneficiary’s medical care, which will be covered by Medicaid. However, the trust funds can be used to pay for a trip for the beneficiary to go to Disney World or to the movies.
A major advantage to the Supplemental Needs Trust is that when the beneficiary passes away, the State of New Jersey will not require that any of the funds in the Trust be repaid for any Medicaid benefits that have been paid to the beneficiary during his or her life.
A Self-Settled Special Needs Trust is administered in a similar manner as a Supplemental Needs Trust. However, it is funded with the beneficiary’s own assets. A Special Needs Trust can only be established by parents, grandparents, or by an order of a court with the disabled beneficiary’s funds. The Trust must also be approved by the State of New Jersey and the Social Security Administration.
Special Needs Trusts have additional formalities, but a major requirement is the inclusion of a payback provision to the State of New Jersey for any governmental benefits paid to the beneficiary over the course of his or her lifetime. Any balance remaining after the State is paid back is distributed to the beneficiary’s heirs.
A disabled individual may need both types of trusts.
USES FOR SPECIAL AND SUPPLEMENTAL NEEDS TRUSTS
SNTs can be used for various expenditures that are not covered by SSI and Medicaid such as: