3 Special Needs Trusts (37 Pages)

PLEASE NOTE: This trust document replaces the one previously offered on our site which was entitled "First Party (aka Self-Settled) Special Needs Trust".

 

This is a trust authorized by law (42 U.S.C. 1396p(d)(4)) and funded with the assets of a disabled individual under the age of 65 who is also the trust beneficiary. Until December of 2016, the trust could not have been created by the individual. It was typically created by the parents, grandparents or other relative of the disabled person, or pursuant to a court order. It is often created as the result of a personal injury settlement or recovery, or after an inheritance by the disabled person. An important change to the law was made late in 2016. The 21st Century Cures Act expanded the opportunity for this trust by inserting “the individual” after “for the individual by” in 42 U.S.C. 1396p(d)(4)(A). The effective date of the amendment applies to trusts established on or after December 13, 2016. This means that individuals may now establish a “special needs trust” themselves if they are able and wish to do so.

 

The trust is designed to allow the disabled person to be supported by Medicaid or similar governmental programs while allowing the trust assets to be used for the special needs of the beneficiary not covered by public assistance programs. If there is a Medicaid lien in existence before the trust is funded, it must be paid off before funding the trust. The trust must provide for reimbursement to Medicaid (or other governmental providers) with any available trust funds at the death of the beneficiary. If any assets remain in the trust after the reimbursement, they can be distributed to the chosen heirs of the beneficiary. 

 

So long as the trust is established and funded before the beneficiary turns age 65, the terms of the trust continue to be operative even after the beneficiary passes age 65. Contributions to the trust after the beneficiary turns 65 are not protected as “special needs” funds.

 

 

This is a trust authorized by law (42 U.S.C. 1396p(d)(4)) and funded with the assets of a disabled individual under the age of 65 who is also the trust beneficiary. Until December of 2016, the trust could not have been created by the individual. It was typically created by the parents, grandparents or other relative of the disabled person, or pursuant to a court order. It is often created as the result of a personal injury settlement or recovery, or after an inheritance by the disabled person. An important change to the law was made late in 2016. The 21st Century Cures Act expanded the opportunity for this trust by inserting “the individual” after “for the individual by” in 42 U.S.C. 1396p(d)(4)(A). The effective date of the amendment applies to trusts established on or after December 13, 2016. This means that individuals may now establish a “first-party special needs trust” themselves if they are able and wish to do so.

 

The trust is designed to allow the disabled person to be supported by Medicaid or similar governmental programs while allowing the trust assets to be used for the special needs of the beneficiary not covered by public assistance programs. If there is a Medicaid lien in existence before the trust is funded, it must be paid off before funding the trust. The trust must provide for reimbursement to Medicaid (or other governmental providers) with any available trust funds at the death of the beneficiary. If any assets remain in the trust after the reimbursement, they can be distributed to the chosen heirs of the beneficiary. 

 

So long as the trust is established and funded before the beneficiary turns age 65, the terms of the trust continue to be operative even after the beneficiary passes age 65. Contributions to the trust after the beneficiary turns 65 are not protected as “special needs” funds.

 

This version of the Special Needs Trust is one created by the disabled person for the benefit of himself or herself. 

 

PLEASE NOTE:  This is the same form which was previously titled "Supplemental (aka Special) Needs Trust By Third Person".  We expanded the title to better clarify this form from our other two available Special Needs Trusts.  

 

This Form is a Supplemental Needs Trust created by a third party. This means that it is the assets of the third party, not those of the beneficiary, that are being used to fund this Trust. This means that the grantor of the Trust may provide that when the Trust terminates, an alternative beneficiary may receive the balance of the remaining trust assets, if any (as opposed to the state Medicaid authorities). This Trust recites that it is created for the benefit of the grandson of the grantor. Obviously, anyone could be named beneficiary of such a Trust. Similarly, the granddaughter of the grantor is named as the successor beneficiary. Again, anyone could be named in this capacity.

 

As a Supplemental Needs Trust, the Trust is prohibited from being used to address the basic needs (food, clothing and shelter) of the Beneficiary which are to be provided by public assistance. The Trust funds may only be used, in the discretion of the Trustees, to address those special needs of the Beneficiary which may be necessary or desirable to supplement the Beneficiary’s quality of life which are not covered by programs of public assistance.

 

Note that the Trust is irrevocable and cannot be invaded by either the Beneficiary or the claims of creditors of the Beneficiary. 

Author:
Steven G. Siegel is president of The Siegel Group, which provides consulting services to attorneys, accountants, business owners, family offices and financial planners. Based in Morristown, New Jersey, the Group provides services throughout the United States. Mr. Siegel is the author of many books, including: The Grantor Trust Answer Book (2012 and 2013 CCH); CPA’s Guide to Financial and Estate Planning (AICPA 2012); and Federal Fiduciary Income Taxation (Foxmoor 2012). In conjunction with numerous tax planning lectures he has delivered for the National Law Foundation, Mr. Siegel has prepared extensive lecture materials on the following subjects: Planning for An Aging Population; Business Entities: Start to Finish; Preparing the Audit-Proof Federal Estate Tax Return; Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally-Defective Grantor Trusts, Introduction to Estate Planning; Intermediate-Sized Estate Planning; Social Security, Medicare and Medicaid: Explanation and Planning Strategies; Subchapter S Corporations: Using Trusts as Shareholders; Divorce and Separation: Important Tax Planning Issues; The Portability Election; Generation-Skipping Transfer Tax: A Comprehensive Review; and many other titles. Mr. Siegel has delivered hundreds of lectures to thousands of attendees in live venues and via webinars throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including The Heckerling Institute on Tax Planning, CCH, National Law Foundation, AICPA, Western CPE, the National Society of Accountants, the National Tax Institute, Cohn-Reznick, Professional Education Systems, Inc., Foxmoor Education, many State Accounting Societies and Estate Planning Councils as well as on behalf of private companies. He is presently serving as an adjunct professor of law in the Graduate Tax Program (LLM) of the University of Alabama, and has served as an adjunct professor of law at Seton Hall and Rutgers University law schools. Mr. Siegel holds a bachelor’s degree from Georgetown University (magna cum laude, phi beta kappa), a juris doctor from Harvard Law School and an LLM in taxation from New York University Law School.