Written and Current as of December 2014
People approach estate planning with many different goals in mind. When one of those goals is providing for the wellbeing of a disabled family member, special attention must be paid to ensure that provisions for the family member do not jeopardize that family member’s eligibility for certain government benefits. This article addresses some of the obstacles, and solutions, associated with planning for a disabled loved one.
THE PROBLEM
Taking care of a disabled loved one can be very expensive. Among the many costs to consider are special housing, medical care, and other basic expenses associated with everyday life. There are government funded programs available to assist with these costs, but eligibility is limited to recipients with very little assets otherwise accessible to them. Accordingly, leaving an inheritance to a disabled family member may disqualify that family member from receiving public benefits. The family member may again be eligible for benefits once the inheritance has been exhausted, but by then there will be no additional funds leftover to supplement or improve their quality of life.
THE SOLUTION
In Minnesota, a carefully drafted and administered Supplemental Needs Trust or Special Needs Trusts may enable a higher quality of life for a loved one without hindering access to public assistance with housing, medical care, and basic support. Although the two types of trusts are often referred to interchangeably in popular literature, in Minnesota they have some important distinctions that are discussed below.
A. The Minnesota Supplemental Needs Trust
A Supplemental Needs Trust is funded by anyone other than the disabled person, their spouse, or someone with a legal obligation to pay a sum to the beneficiary (the person benefitting from the trust). A parent or grandparent may set up a Supplemental Needs Trust to supplement the benefits provided by Social Security or Medicaid, by directing disbursements for living expenses not otherwise provided for by publicly-funded programs. Some examples of supplemental expenses are medical services not covered by Medicaid, educational expenses, costs associated with recreational opportunities, and travel costs. A Supplemental Needs Trust may also be used to pay for certain items like a home, motor vehicle, or life insurance.
A Supplemental Needs Trust must be carefully drafted and administered to ensure that disbursements do not impact a family member’s eligibility for public benefits. Publicly-funded programs provide for a basic subsistence level of housing, clothing, food, and medical care. Disbursements from a Supplemental Needs Trust must be made only when such public benefits are inadequate or unavailable to meet the family member’s needs. A non-exhaustive list of things to consider include: (1) making sure the trust document expressly prohibits disbursements that would have the effect of supplanting, replacing, or substituting the publicly-funded benefits; (2) making sure that a trustee’s disbursements are made in a way that, in fact, do not have the effect of supplanting public benefits; and (3) ensuring that trustees are current on state and federal requirements associated with the administration of a Minnesota Supplemental Needs Trust.
B. The Special Needs Trust / OBRA ’93 Trust / Pay-back Trust
A Special Needs Trust, unlike a Supplemental Needs Trust, is a self-settling trust, meaning that it is created using funds belonging to or owed the disabled person or the disabled person’s spouse. The trust itself may be set up by the beneficiary’s parents, grandparents, guardian, or through approval by the court. In addition to the requirements of a Supplemental Needs Trust, a Special Needs Trust is only effective if the beneficiary is under age sixty-five (65) at the time the trust is created. The trust must also include a provision indicating that any remaining assets of the trust will be used to repay the state for medical assistance benefits.
Like the Supplemental Needs Trust, there are many special considerations when administering a Special Needs Trust. For example, disbursements must have the effect of supplementing rather than supplanting public benefits. Furthermore, disbursements from the trust must be made “in-kind” to third parties for uses other than food and shelter; and the trustee must submit certain information at various times to the Minnesota Commissioner of Human Services, including an annual accounting.
NEXT STEPS
Both trust types provide supplemental resources to a disabled loved one, but vary in their requirements depending upon the relationship between the disabled person (the “beneficiary”), and the person funding the trust (the “grantor”). A consultation with a skilled attorney current on Minnesota trust law is always advisable should you believe a family member might benefit from the creation of a Supplemental or Special Needs Trust. Please note that there are many considerations not capable of being covered in a blog post. Laws frequently change, as do interpretations of those laws by the court system. Furthermore, each family’s facts are unique, requiring specialized attention to the timing and manner that a trust is created, as well the trust’s administration. To that end, the attorneys at Dudley and Smith would be happy to sit down with you and answer any questions.
This article does not constitute legal advice, nor does it constitute the initiation of an attorney/client relationship. Please consult an attorney licensed in your jurisdiction for assistance applicable to your specific facts and circumstances.
The above article was written by Michael S. Divine, an attorney with Dudley and Smith, P.A. Mr. Divine practices primarily in the areas of estate planning and litigation. His main office is located in downtown Saint Paul, though he also has offices in Woodbury, Bloomington, Burnsville, Chanhassen, White Bear Lake, and Blaine.