There are many types of special (or supplemental) needs trusts that can be helpful in Florida. One category of special needs trusts (SNT) is established with the disabled person's own funds/money. These types of SNT are generally referred to as "First Party" or "Pay Back Trusts." Another type of SNT is money established for a disabled beneficiary with another person's money - these are generally called "Third Party" SNTs because the funding to this Trust is from a Third Party (i.e., not the disabled person's own money). Here is an easy way to tell the difference, with examples:
- First Party SNT: Disabled person (on SSI) receives an inheritance of $50,000. These funds would take the disabled person off of SSI/Medicaid as SSI has a $2,000.00 asset qualification limit (among other requirements). But the inherited funds can be placed into a First Party Trust (either a D(4)(a) Trust or a Pooled Trust) that will allow the beneficairy to receive the use of these funds during his or her lifetime. When the beneficiary dies, the funds in these trusts are used to "pay back" the state/government for helping the individual out. Note that the beneficiary had to receive the funds - the beneficiary could not give the money away or disclaim the funds as that would create a Medicaid Transfer Penalty.
- Third Party SNT: Here, instead of the disabled person receiving an inheritance of $50,000.00, the decedent left the inheritance into a Third Party Supplemental Needs Trust instead. The funds in this SNT can be spent to help supplement the disabled person's government benefits during his or her lifetime. Unlike in the First Party SNT, when the disabled person dies, the assets in the SNT DO NOT go to the government but can instead go to wherever the decedent wants the funds to go - this is a very important distinction.
Typical Example of a "Third-Party" SNT
The first thing to remember is that a third party SNT is established by someone with their own money for someone else's benefit. This is the typical example:
Mom has two children, one of whom was developmentally disabled through an autistic spectrum disorder. This child receives Supplemental Security Income and Medicaid in Florida. Mom set up a revocable living trust as part of her estate plan. Upon her death, her assets are split equally between her non-disabled child and the SNT for her disabled child's benefit. Here, she set up an independent trustee who is in charge of the SNT. The SNT can pay for anything over and beyond the child's meager SSI benefits, meaning it can pay for housing, vacations, caregivers, televisions, and anything else that the disabled beneficiary would normally not be able to afford (important rules apply). When the disabled beneficiary dies, any remaining funds go back to her other child (and not the State of Florida, for instance).
Why the SNT? The funds benefit the beneficiary, allow for professional management of the funds, and the funds do not interfere with the beneficiary's Medicaid/SSI/free health insurance! Mom gets to benefit her disabled child without interfering with their necessary SSI/Medicaid.
How a "Third Party Special Needs" Trust Can Help Your Loved One
- A special need trust will protect assets while making the person eligible for government benefits
- A special needs trust will step in to provide the money needed for care beyond Medicaid and other government benefits
- A special needs trust can add to a beneficiary’s quality of life by providing life’s extras, not just the necessities
- A special needs trust can pay for vacations, social events, and sports activities
- Puts a professional or responsible person in charge of the trust for money management/spending purposes instead of an outright gift to someone who may not able to responsibly receive an inheritance
- You get peace of mind knowing your disabled loved one is provided for without taking him/her off of SSI/Medicaid
What Makes it a Special Needs Trust?
There is a lot of discusion here but we can generally say that there are two types of trusts established for beneficiaries by a loved one such as a parent or grandparent. Remember, these types of trusts are not established with the disabled person's own funds - they are established by someone (like a parent or grandparent, with their own money) for the benefit of their loved one. The trust established for that person's benefit can roughly be categorized as:
- General Needs Trust: Also known as Support Trusts, the trustee has the duty to support the beneficiary for his/her lifetime. Most support type trusts require the beneficiary to pay for the beneficiary's health, education, maintenance and support, generally known as the HEMS standard, which are roughly classified as mandatory payments. The beneficiary will generally have the right to demand money for his or her support and if the trustee does not pay to support the beneficiary, the beneficiary may sue to remove the Trustee for breach of fiduciary duty. Here is an example:
- Son is not good with money and may spend money received as an inheritance on drugs. Here, mom wants to help her son upon her death but does not want him to receive all of her money at once. Here, she has her funds left in a general needs trusts, meaning the trustee must pay to supper her son during his lifetime, meaning the Trustee must pay for the beneficiary's rent/health care costs/maybe an allowance of $1,000 per month/car care needs, etc.
- NOTE that because the Trustee has the duty to support the beneficiary, the government will consider this a countable asset for Medicaid/SSI purposes if the beneficiary wanted these benefits. Here, the government's thoughts are that since the Trustee has the duty to support the beneficiary, why should we? Assets held in a general needs trust are countable assets for Medicaid purposes.
- In this example, the trust may also have mandatory payments to the beneficiary, such as the payment of income annually or a set amount per month as an income stream, as well.
- Son is not good with money and may spend money received as an inheritance on drugs. Here, mom wants to help her son upon her death but does not want him to receive all of her money at once. Here, she has her funds left in a general needs trusts, meaning the trustee must pay to supper her son during his lifetime, meaning the Trustee must pay for the beneficiary's rent/health care costs/maybe an allowance of $1,000 per month/car care needs, etc.
- Special/Supplemental Needs Trust: Here, the Trustee can pay anything to help the beneficiary but the Trustee generally does not have the duty to support the beneficiary. The Trustee can make any payment but the funds in the SNT do not interfere with government benefits because the beneficiary cannot demand funds from the Trustee in an SNT. There is a lot of nuance here, but the trustee does not have the duty to make mandatory payments to support the beneficiary, which roughly means it is an SNT.
The differences between the two types of trusts can be somewhat subtle. Both trusts can pay to help the beneficiary in any number of ways, but the SNT does not take someone off of Medicaid/SSI benefits. A good estate planning attorney can walk you through the differences and which one would be right for your beneficiary/loved one.
When and Where Do You Establish a Third Party SNT?
Third party SNTs are generally established in a few ways:
- Testamentary SNT in Your Last Will and Testament: You can set up an SNT for a loved one in your last will and testament so that his/her inheritance can be set up when you die. When you die, your funds generally go through the probate process to fund this trust.
- SNT in Your Revocable Living Trust: This SNT gets funded upon your death through your living trust. The key difference is that your assets in your living trust avoid probate upon your death, generally saving the family time and money.
- Stand-Alone SNT: This third party SNT would be established and probably funded during your lifetime. The key is that not just you can/would fund the SNT but many people can add funds to this trust. As an example:
- Mom creates and funds a stand-alone SNT for the benefit of her disabled daughter. Mom's own parents and other family members may leave or gift money to this trust during their lifetimes. The key difference is that multiple people will fund/transfer assets to this trust, maybe at different times in the beneficiary's lifetime. Upon the death of the disabled beneficiary, assets are distributed to predetermined people.
- Switch/Backup SNT: Your own estate plan can create a general needs trust for a beneficiary who is not responsible with their funds, as an example set forth above. BUT - what if the beneficiary becomes disabled and needs government benefits during their lifetimes? Then, your estate plan can "switch" from being a general needs trust to a special needs trust! Here is an example:
- Mom leaves her money in trust for her son's benefit, giving him $2,000/month to live on as he is not good with money. A bank/trust company/attorney or responsible family member is trustee of this trust for son's lifetime. But the son gets older, has a stroke and must stay in the nursing home at the cost of $10,000/month. The beneficiary only has $1,000/month in his own social security retirement and he has few funds, so he could look to Florida Nursing Home Medicaid to pay for his nursing home care. The problem is that the mandatory $2,000/m payment does not help the son as the payment just takes him off of Medicaid (unless a Qualified Income Trust is established) and/or does not even benefit him because these payments just go to the nursing home, not benefitting the beneficiary! Here, the trust can "switch" to an SNT and withhold the $2,000/month payment but the trust could still make payments for the beneficiary's special needs - such as a private room, caretaker, care management and more!
One important thing to consider when creating your estate plan is that not all attorneys are created equally. Our law firm automatically includes backup SNTs in all of our trust drafting, but some attorneys do not! Here is a true life example:
Our client did her revocable living trust planning with another attorney, so it did not have a backup SNT built into the trust. Our client did not have any children and she was fairly well off, leaving over $500,000 to her sister. Unfortunately, her sister was very sick and in the nursing home and on Medicaid benefits. Since this living trust did not have a backup SNT built into it, the trustee could only cut a check to the beneficiary, which took her off of Medicaid. Ultimately, the entire inheritance probably ended up being used for the sister's healthcare instead of Medicaid paying for it.
What Types of Government Benefits Apply?
Third party special needs trusts generally help with most needs-based government benefits. In Florida, this typically helps a disabled person receiving Supplemental Security Income (SSI) and, importantly, Medicaid benefits. Medicaid can be not just the health insurance for the disabled but for the benefit of a loved one in a nursing home, for instance.
Can Our Law Firm Help?
We are expert estate planning, elder law and special needs trusts attorneys and we have helped people all across Florida. Please feel free to reach out to see if we can help. You can also download our Free Book on Florida Estate Planning.
