Written by Andrew Lorelli
Supplemental Needs Trusts (“SNTs”, also called Special Needs Trusts) are a common estate planning tool. SNTs are for people who receive means-tested government benefits, as well as those who also may be the beneficiaries of an estate or the recipient of settlement funds after a lawsuit. SNTs are designed to allow the beneficiary to get help from both sources.
However, the government insists on a series of restrictions on who can act as trustee, what kinds of purchases the trustee can make and what happens upon the death of the beneficiary. That’s where our office’s experience comes in, allowing us to advise our clients on what they may and may not do under the rules and regulations. In the course of administering these trusts, we often get the same questions from our clients. Here are five of the most common:
Is the money still mine? Can’t you give it to me directly as a beneficiary?
Unfortunately, the answer is no. Once the funds are placed in the trust, the beneficiary loses the right to control them. That becomes the job as trustee. The trustee accepts a fiduciary duty to the beneficiary; that is, a duty to act in the best interests of the beneficiary. However, if the trustee were to give money directly to the beneficiary, such a transfer would seriously jeopardize the beneficiary’s continued receipt of means-tested benefits. In fact, it can be a crime to do so – we strongly advise against it.
Who should be my Trustee?
We advise our clients to select a trustee who they know and trust to act in the best interests of the beneficiary. Typically, this is a close family member or professional with experience in managing such arrangements. The limitations are that the trustee may not be the beneficiary or the beneficiary’s spouse. If the trust is supervised by a probate court, the trustee may have to qualify for a bond.
Can I buy something for someone else?
No, the trust is only to be used for the benefit of the beneficiary. The government does not permit gifts to third parties. This should not be confused with payments to third parties for products or services. In fact, the trust should make payments directly to vendors. However, the trustee is not permitted to simply make outright gifts or make purchases for third parties. This violates the law and could result in a loss of benefits.
Does a judge need to approve a purchase?
It depends. If your trust is supervised, we typically request court permission for purchases over $2,000. Common items include the purchase of a vehicle or home for the beneficiary. In those cases, it’s best to ask for permission before buying. However, with day-to-day needs, you typically do not need court approval. The trustee should simply account for the purchases and keep records.
What happens to the trust after I pass away?
One of the trade-offs with SNTs is that the government requires the Social Security Administration and your state’s Medicaid department to be paid back from the trust, upon the death of the beneficiary. Let’s say you received $100,000 in benefits during your lifetime, and your trust has $200,000 when you pass away. The government is entitled to be paid back $100,000.00 automatically – they have priority. The rest of your trust passes through your estate, which you can direct however you choose.
These are just five of the most common questions we commonly receive from our clients. If you have other questions about SNTs and how they work, and whether it’s the best option for you, please contact our office at 1-(877)-YOUR-FIRM. We have a team of experienced attorneys who practice in the administration of these kinds of trusts. We will be happy to answer your questions and advise you on the best course of action. We look forward to hearing from you.