As discussed in previous posts, there are a variety of trusts available in Minnesota to meet the specific needs of people. Usually, these trust documents are used to protect assets, provide income for children when tragedy strikes, and avoid taxes. There are some designed with the express intent of protecting individuals with a disability. These are called “supplemental needs trusts,” and they differ from special needs trusts. While special needs trusts can be used, there are inherent complications due to ever-changing Social Security and Minnesota policies. For that reason, we will focus on supplemental needs trusts in Minnesota.
What is a Supplemental Needs Trust?
Supplemental needs trusts are funded with assets belonging to someone other than the person with a disability or their spouse or someone obligated to pay damages. Outside of Minnesota, this may be called a third-party special needs trust. It is designed to provide supplemental income to a person receiving benefits through Supplemental Security Income (SSI) or Medicaid (MA). As you may have guessed, government benefits are minimal and do not provide enough income to the recipient. The problem with giving money to someone on benefits is it may make them ineligible for benefits. Money received from a supplemental needs trust does not count against the eligibility and thus provides the security the disabled person needs to avoid living solely on government benefits.
Creating a Supplemental Needs Trust
So, you must ask who creates the trust, if not the disabled person or their spouse? Typically, the grantor of a supplemental needs trust will be a parent or grandparent. Other family members or even people outside of the family may contribute to the trust. Just as long as the trust is not established by the beneficiary, their spouse, for someone obligated to pay under a legal settlement or decree.
To create the trust, a person must be disabled. In your mind, you can easily picture a person with a disability; however, Minnesota statutes specifically define what disabled means. Sorry, but get ready for some boring legalese. A disabled person “is considered to be a person with a disability under the disability criteria specified in Title II or Title XVI of the Social Security Act; or…has a physical or mental illness or condition which, in the expected natural course of the illness or condition, either prior to or following the creation of the trust, to a reasonable degree of medical certainty, is expected to: last for a continuous period of 12 months or more; and substantially impair the person’s ability to provide for the person’s care or custody.”
Sorry about that, but it is important to be precise. Essentially, persons who qualify for SSI, SSDI, or those certified as disabled by the State Medical Review Team can benefit from a Supplemental Needs Trust. Written statements of two qualified medical professionals may also certify the beneficiary’s condition.
There are also additional factors to consider for supplemental needs trusts. The trust may only authorize distributions for reasonable living expenses that provide additional funds instead of completely replacing the needs-based government benefits. Therefore, the trust document must contain restrictions that prevent the beneficiary from becoming ineligible for public benefits. Also, tax and treasury regulations apply to these trusts. Think of it this way: Government benefits are often not enough, so supplemental trusts give additional support to beneficiaries. It will not enrich them, but it will provide enough to allow the beneficiary a reasonable living.
In summary, supplemental needs trusts are distinct from special needs trusts and the preferred vehicle to support a person with a disability living on government benefits. These trusts must be created by a third party, someone other than the beneficiary or their spouse. Supplemental needs trusts can provide income for reasonable living expenses without making the beneficiary ineligible for government benefits. Eligibility requirements can be established in a few ways, but generally, people living off government benefits qualify for special needs trusts. It will not make them wealthy, but it will provide the support needed above, and beyond the income from the government. Careful drafting is necessary, so it’s a good idea to reach out to an attorney for help.
Feel free to reach out to Nobleheart Legal if you would like to discuss supplemental needs trusts.
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