speaking PROFESSIONALLY
By Anthony S. Rachuba, IV, Esq. Fitzpatrick Lentz & Bubba, P.C.
SPECIAL NEEDS
Special Needs Trusts are important estate plan- ning tools which should be considered by all fam- ilies in which a member of the family is receiving, or may be eligible to receive, Medical Assistance (also known as MA or Medicaid), Supplemental Security Income (SSI) and/or Mental Health and Mental Retardation (MH/MR) benefi ts. A Special Needs Trust allows a person with disabilities to continue to receive the above benefi ts. Whereas if the disabled person were to own the assets that are in the trust outright in his or her individual name, such benefi ts would be taken away (if the disabled person was already receiving the benefi ts) or the disabled person would not be eligible to receive the benefi ts in the fi rst place (if the disabled per- son applied for the benefi ts while already own- ing assets in excess of a specifi c amount allowed under the law).
There are three different types of Special Needs Trusts which must be considered when planning to preserve a disabled person’s right to receive Medical Assistance, Supplemental Security In- come and/or Mental Health and Mental Retarda- tion benefi ts.
THIRD PARTY SPECIAL NEEDS TRUST
The fi rst type of Special Needs Trust is a Third Party Special Needs Trust which is typically created for the benefi t of a disabled person and funded with money or other assets from a third person such as a parent or grandparent. A Third Party Special Needs Trust cannot be funded with the assets of the disabled person. The Trust can be created as a separate trust which can either be
42 May 2013 TRUSTS
FIRST PARTY SPECIAL NEEDS TRUST
The second type of Special Needs Trust is a First Party Special Needs Trust or more commonly re- ferred to as a Self-Funded Special Needs Trust. Self-Funded Special Needs Trusts were fi rst au- thorized under the Omnibus Budget Reconcili- ation Act of 1993, and are now permitted under federal statute, specifi cally 42 U.S.C. §1396p(d) (4)(A). A Self-Funded Special Needs Trust is funded with assets belonging to the disabled per- son and is typically created when a disabled per- son receives proceeds from a lawsuit or receives an inheritance outright which would otherwise cause the disabled person to lose the government provided benefi ts that were being received.
PROTECTING THE BENEFITS OF A PERSON WITH DISABILITIES
funded by a gift from the third party to the Trust during his or her lifetime or through the third party’s bequest to the Trust upon his or her death. The Trust can also be created under the terms of a Will which is funded at the death of the third party. A Third Party Special Needs Trust must provide that all distributions are to be made at the discretion of the trustee, and that such distribu- tions shall be made to supplement, and not sup- plant, the benefi ts the disabled person is receiving or may receive in the future. A Third Party Spe- cial Needs Trust should be considered whenever a family member wants to leave assets to the dis- abled person upon the family member’s death. If proper planning is not done, and the disabled per- son receives the inheritance outright, then a First Party or Self-Funded Special Needs Trust must be created to preserve any governmental benefi ts.
Some of the re- quirements for es-
tablishing a Self-Funded Special Needs Trust are (1) it must be created by a parent, grandparent, guardian or a court; (2) in Pennsylvania, it must be approved by the Offi ce of General Counsel; (3) it must be for the sole benefi t of the disabled person who is under the age of 65; (4) it must provide that the trustee has total discretion as to distributions from the Trust and that distribu- tions shall be to supplement, and not supplant, the benefi ts the disabled person is receiving; and (5) it must contain a “payback” provision which provides that upon the death of the dis- abled person, the remaining assets of the Trust will fi rst be used to pay back the Medical As- sistance benefi ts that were paid to the disabled benefi ciary during his or her life. Any remain- ing assets not used to pay back Medical Assis- tance benefi ts can pass to whoever is named as the contingent benefi ciary(ies) under the terms of the Trust.
POOLED TRUST
The third type of Special Needs Trust is a Pooled Trust. A Pooled Trust can either be established by a third party with funds belonging to the third party, or it can be self-settled and funded with the assets of the disabled person. If a self-settled Pooled Trust is the type of trust that is chosen, it must be created by a parent, grandparent, guardian, court or the disabled person. A Pooled Trust combines the assets of numerous disabled persons for investment purposes only, but each person has his or her own account within the Pooled Trust.
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