Trusts

The Problem: How to Assure Financial Security for Individuals with Disabilities

Benefits, such as SSI and Medicaid, are critical resources for many individuals with disabilities. These benefit programs, while essential, are often insufficient to meet basic needs for living. In order to be eligibile for these programs individuals must meet very restrictive income and resource limitations.

When able to do so, families often supplement the benefit income received by their family member who has a disability. Family members worry about the future when they will no longer be able to provide such supplemental assistance.

In many situations, a special needs trust is the best solution for protecting benefits and for assuring that funds are available for future use. SSI and Medicaid regulations allow recipients to have assets held in special needs trusts. Assets held in a properly structured and administered special needs trust will not negatively affect eligibility for benefits. Although the individual with a disability can have no control over or direct access to the special needs trust, distributions can be made to supplement benefit income as necessary to meet living and health care needs.

The Solution

The legal documents for a special needs trust may be drawn up by an attorney and administered through any trust company. The terms of the trust must contain language that specifies the funds are available only to supplement, not supplant benefits to which the beneficiary is entitled. However, a special needs trust established and administered through MSNT has some advantages over a trust company that administers all types of trusts.

• MSNT is a non-profit organization established by statute (402.199– 402.220 RSMo) in the State of Missouri for the purpose of administering special needs trusts. Special needs trusts are the only type of trust accepted by MSNT.
  
• MSNT staff stays abreast of SSI and Medicaid regulations and are required by statute not to make distributions that negatively affect the benefits of the beneficiary.
  
• MSNT is committed to making trust services accessible to low and moderate income individuals and families.

Eligibility

Any individual who meets the following definition is eligible to establish a special needs trust with MSNT:

• Individual has a mental or physical impairment that substantially limits one or more major life activities, whether the impairment is congential or acquired by accident, injury or disease, and where the impairment is verified by medical findings.

Funding a Special Needs Trust

Special needs trusts may be established with the disabled individual’s own funds (first-party trust) or with funds provided by parents or relatives (third-party trust). Typical sources of funds for special needs trusts are:

• Gifts from family, friends, relatives.
• Proceeds of personal injury settlements.
• Proceeds of a life insurance policy.
• Funds or other assets from an inheritance.
• Back-payments in benefits.

Special needs trusts established with the disabled individual’s own resources must contain a Medicaid pay-back clause (See Pooled Medicaid Payback Trusts).

How Funds in a Special Needs Trust Can be Used

Limitations on the use of funds in a special needs trust are a function both of the terms of the trust itself and the regulations of the benefit programs in which the beneficiary is enrolled. The funds of a special needs trust may be used only to supplement income from benefits. Within these parameters, special needs trust funds may be used for:

• Medical and dental care not paid by other sources.
• Private rehabilitation training, services or devices.
• Supplementary education assistance.
• Entertainment and hobbies.
• Transportation.
• Personal property and services.

All distributions from the special needs trust must be for the sole benefit of the beneficiary. Funds in a special needs trust are managed and controlled by a trustee. MSNT is trustee for all trusts established with this organization. The donor has the option of naming a co-trustee(s). Co-trustee(s) have the responsibility to determine the needs of the beneficiary and to manage the use of trust funds.

How to Establish a Special Needs Trust

Two basic steps must be competed to create a special needs trust. The first step is to complete the legal documents required to establish the trust. These documents are generally completed by an attorney. The documents identify the person for whom the trust is established (beneficiary), the person(s) who are providing the funds for the trust (donor), and the person(s) who will manage the trust (trustee). Other terms of the trust are also set forth in detail. The second step is to establish a trust account and deposit funds to the trust.

Trusts with MSNT are established under the Midwest Special Needs Trust Master Trust. Two types of trusts are available.

• A Third Party Trust is available when the resources used to establish the trust are not those of the beneficiary (i.e., resources are provided by someone other than the beneficiary or his/her spouse). At the death of the beneficiary, a third party trust is not subject to Medicaid payback requirements. Proceeds remaining are distributed to residual beneficiaries in accordance with the terms of the Master Trust.
• A Self Settled Trust is available when the resources used to establish the trust are those of the beneficiary. Proceeds remaining at the death of the beneficiary will be claimed by Medicaid, up to the amount expended for care for the beneficiary. Proceeds remaining after distribution to Medicaid will be distributed to residual beneficiaries in accordance with the terms of the Master Trust.
• MSNT strongly encourages persons interested in setting up a trust to have an attorney assist in completing the documents. MSNT staff is available for consultation as well.
• MSNT requires a minimum opening deposit of $500, plus an enrollment fee to establish an active trust account. If the special needs trust is to be funded at a later date, MSNT will establish an inactive trust with a deposit of $100, plus an enrollment fee of $100. The funds for an inactive trust are held in a general account until the balance reaches $500 and the rest of the enrollment fee is paid.

Note: The establishment of a special needs trust does not take the place of a will. If assets are to be placed into the trust at the death of the donor, a mechanism must be in place to direct the distribution of the asset into the trust for the benefit of the individual with a disability. In general, a will is the legal document wherein the donor spells out how the funds are to be distributed to the special needs trust.

Back to Trusts