! FAQ – Midwest Special Needs Trust

FAQ

What is a Special Needs Trust?
A Special Needs Trust allows an individual with a disability or their family to set aside money without jeopardizing eligibility for Medicaid and SSISupplemental Security Income. Federal regulations require that the trust must be used for supplemental needs for the sole benefit of the beneficiary.
Aren’t trusts just for rich people?
That is a common myth. Midwest Special Needs Trust (MSNT) makes every effort to be affordable to individuals of modest means. A special needs trust allows individuals with a disability to set up a trust that will help with their independence and quality of life. Trusts are typically funded with:

 

Deposit sources for First Party or Self-Settled Trusts for Beneficiaries <65

  • Retroactive Social Security Payment
  • Personal Injury or other legal settlement
  • Inheritance or life insurance to the person with disability
  • Conserved funds

Deposit Sources for Third Party Trusts

  • Family contributions
  • Inheritance directed to a SNT for person with a disability
  • Gifts or fundraising by family or friends

For First Party Trusts for Individuals with disabilities ≥65

Consult with MSNT before establishing a trust to determine if the trust is subject to transfer penalties for Medicaid eligibility.

What is the difference between a first party and a third party trust?
A first party trust is set up by the individual with a disability with their own funds. A legal guardian or a power of attorney with specific authorization to establish a trust may act on the individual’s behalf to set up a trust. Federal regulations require that, at the death of the beneficiary, Medicaid receives any remainder funds up to the amount spent for medical services for the beneficiary during their lifetime. For this reason, first party trusts are often called Medicaid payback trusts.

 

A third party trust is set up by family, friends or others with funds that do not belong to the individual with a disability. Third party trusts are not subject to Medicaid payback. However, third party trusts are still subject to federal regulations and requirements so trust assets will not disqualify the beneficiary from Medicaid or other public benefits.
Why does the age of the person with a disability matter for first party special needs trusts?
Medicaid eligibility requirements allow states to impose a transfer penalty for people who are 65 or older for institutional services and some Medicaid waiver services. If a transfer penalty applies, setting up a trust is generally not advised and offers little or no benefit to the person with a disability.
How can I set up a trust for myself or a loved one with a disability?
Midwest Special Needs Trust (MSNT) advises consulting with an attorney due to the complicated nature of trusts and the serious decisions that must be made when setting up the trust. The trust agreement as well as other informational documents required by MSNT to establish and properly administer the trust can be located at www.midwestspecialneedstrust.org. The completed forms must be accompanied by the initial deposit which will establish the trust. MSNT will deduct the enrollment fee from the newly established trust account shortly after it is opened.
What decisions must be made when setting up a trust?
Completing the trust document requires that the individual or family has given careful consideration to:

  • Designation of co-trustees and successors responsible for distribution requests & other trust-related matters
  • Listing residual beneficiaries who, at the death of the trust beneficiary, will receive the trust remainder after other claims and expenses are paid
  • Investment mutual fund elections and determining future investment decision-making authority.
What is the minimum amount to set up a trust?
A special needs trust can be set up at MSNT with a minimum deposit of $1000 plus the enrollment fee of $750 (which may be reduced for low-income donors with proof of qualifying income).
What are the federal requirements for how special needs trust funds can be used?
Social Security regulations are based on the assumption that Supplemental Security Income (SSI) or other public benefits are to be used to cover expenses for basic needs. Consequently, special needs trust funds cannot be used for rent/mortgage, utilities or groceries. Any distribution for these expenses can result in disqualification for benefits or result in reduction of the cash benefit amount.

 

Special needs trust distributions are to support supplemental needs of the person with disabilities. These can include dental and medical services not covered by Medicaid, co-pays for medications, over the counter and medical supplies, adaptive equipment, entertainment and hobbies, or other needs and activities for the sole benefit of the life beneficiary.

 

As trustee, MSNT reviews distribution requests consistent with federal requirements and fiduciary responsibilities.
Why use Midwest Special Needs Trust instead of a bank?
  • A low minimum account balance of $1000
  • Enrollment fees are adjusted on a sliding scale based on income
  • Reasonable fees designed to make the trust accessible to low and middle income individuals and families
  • Distributions are typically processed each business day
  • MSNT is governed by a public board including attorneys, advocates and families of people with disabilities
  • Upon request, MSNT can provide information to public benefit specialists for eligibility reviews and re-investigation
  • MSNT administers only special needs trusts and has staff familiar with the needs of persons with disabilities
  • MSNT meets federal requirements as a pooled trust (sometimes called a D4C trust) allowing individuals with disabilities to set up a Medicaid payback trust for their own benefit.
What fees does MSNT charge for a Special Needs Trust?
In addition to the enrollment fee of $750 which can be adjusted based on income, asset value fees are charged at a rate of 1.5% for the first $15,000 of the asset value and 0.9% for the asset value above $15,000 (Bank Investment Fees not included). A $10 fee is assessed for each distribution from the account. Closure fees, administrative expenses allowed by federal regulation, Medicaid payback for first party trusts, and Charitable Trust retained funds, as permitted by statute, are collected when the account is closed due to death. Many accounts are depleted and closed when the account falls to $1000. View fees.

Trusts

Why use a special needs trust rather than a traditional trust?
While other trusts may count as disqualifying assets for the person with a disability, a special needs trust does not preclude a person with disabilities from eligibility for state and federal entitlement programs such as Supplemental Security Income (SSI) and Medicaid.
Does a special needs trust account administered by Midwest Special Needs Trust (MSNT) protect an individual's eligibility for means-tested public benefits like SSI and Medicaid?
Yes. In Missouri, Chapter 402 of the Revised Statutes is the law which directs MSNT to protect entitlements. The Midwest Special Needs Trust Master Trust complies with state and federal requirements to be treated as an exempt asset for purposes of determining eligibility for Medicaid, Social Security and services from the Missouri Department of Mental Health.
Are there other programs like MSNT in the nation?
Yes. A few states have passed legislation to establish programs similar to the Midwest Special Needs Trust. However, most programs like the Midwest Special Needs Trust are operated by advocacy organizations or charitable foundations.
Is the Midwest Special Needs Trust a state governmental entity?
Yes and no. The Missouri Family Trust, doing business as Midwest Special Needs Trust since 2007, is a 501(c)(3) non-profit agency established by legislation (402.199-402.208 RSMo) as a public instrumentality of the State of Missouri. The Midwest Special Needs Trust is self-supporting and does not receive state or federal appropriations for operational expenses. Thus, it maintains fiscal and operational independence from the state. The Midwest Special Needs Trust is administered by a Board of Trustees appointed by the Governor of Missouri. Six of the nine members must have a family member with a disability.
What types of funds may be used to establish a special needs trust?
MSNT accepts checks for initial deposit to establish a trust account.  Other liquid assets in the form of stocks or bonds, money market funds and treasury bills must be converted to cash/check for deposit unless the Board has approved acceptance of specific investments or interests as trust assets.  Also, receipts from insurance policies, annuities, or settlements may be used.  MSNT cannot accept real or personal property as trust account assets.
What is the minimum amount required to open a trust with the Midwest Special Needs Trust?
An inactive trust may be established with a deposit of $100, plus an enrollment fee of $100. Active trusts may be established with a minimum of $1000 plus an enrollment fee. Small or inactive trusts are sometimes established in anticipation of the receipt of settlement proceeds or inherited funds. See comparison of active and inactive trusts.
May more than one person contribute to the special needs trust?
Yes. The trust may be established by up to two donors; others may make additional contributions to the trust.
May funds be added to the trust after the initial deposit?
Yes. Additional funds may be added at any time.  Additional funds should be sent to MSNT for processing and deposit to the trust account.
How are individual trust account funds invested?
The assets are invested consistent with the directives elected in the investment section of the Declaration of Trust.  Several investment options are offered for donors who wish to designate what investments are utilized.  Consistent with the purpose of the Midwest Special Needs Trust and the nature of the trusts administered by MSNT, the investment options are mutual fund portfolios with diverse holdings that tend to be more stable and conservative. Investment portfolio allocations and a chart of quarterly investment performance are posted on the MSNT website.
If the donor's financial status changes can the assets in the special needs trust be reclaimed?
If the trust has been established as a revocable third party trust by a donor, all or part of the funds may be reclaimed during the donor’s lifetime based on a written request and pursuant to the terms of the MSNT Master Trust. First party trusts established with the beneficiary’s own resources are irrevocable and require Medicaid payback at the termination of the trust.
Is the income from the trust taxable?
Since the donor may reclaim all or part of the funds contributed to a third party revocable trust during his/her lifetime, the earnings are taxed to the Donor. For revocable accounts, the bank sends earnings information to the donor for preparing tax returns.  Earnings of irrevocable trusts are taxed to the trust, a separate tax entity from the beneficiary/donor with its own EIN number.  View FAQ list for additional tax questions.
How does a beneficiary request distributions from a trust account administered by MSNT?
The co-trustee designated by the donor has the authority to request funds on behalf of the beneficiary. Funds may be requested at any time using MSNT’s Distribution Request Form.  Distributions must be for the sole benefit of the named beneficiary and are subject to review and must comply with Social Security requirements for special needs trust distributions.  MSNT will not authorize any distribution that may result in reduction or loss of public entitlements such as SSI and Medicaid. View the MSNT Co-trustee Guide.
May the beneficiary of a third party trust receive funds from the trust prior to the death of the donor?
Yes. Distributions are made to the beneficiary according to the terms of the Midwest Special Needs Trust and in consultation with the co-trustee for the beneficiary.
Will the donor and co-trustee receive regular statements on the financial performance of funds invested by the Midwest Special Needs Trust?
Yes. Trust statements are provided quarterly for each trust account. View the account statement fact sheet.
What are the administrative fees charged by Midwest Special Needs Trust for maintaining a special needs trust?
Administrative fees are charged for trust accounts and are taken monthly from each account.  View a summary of administrative fees for individual trust accounts.
Must a beneficiary reside in the State of Missouri to participate in the Midwest Special Needs Trust?
No. The beneficiary must be a resident of Missouri or one of states adjacent to Missouri. These states are Nebraska, Kansas, Oklahoma, Arkansas, Tennessee, Kentucky, and Illinois. MSNT will open third party trusts for Iowas residents.  The donor may reside anywhere.
Will a beneficiary's participation in the Midwest Special Needs Trust be affected if his/her state of residence changes?
No. MSNT will continue to administer trusts for beneficiaries who move to another state after a trust is established.
Does one need the services of an attorney to establish a special needs trust with the Midwest Special Needs Trust?
No. It is suggested, not required, that an attorney be consulted prior to establishing a special needs trust.
Will a guardian for the beneficiary be necessary to ensure that his/her interests are protected?
No. The co-trustee designated by the donor represents the interests of the beneficiary. However, for other reasons it may be appropriate to have a guardian appointed. The need for a guardian has to be determined by each family on an individual basis. If a guardian has been appointed for the beneficiary, the guardian may be required to sign the first party trust document to open the trust.
Is it possible for a donor to make a tax deductible contribution to the Midwest Special Needs Trust?
Funds contributed to an individual beneficiary’s trust account is not tax deductible. However, tax deductible contributions may be made to the Midwest Special Needs Trust Charitable Trust, which provides financial assistance for low income persons with disabilities. For more information call the Midwest Special Needs Trust office.

When MSNT is Sole Trustee

When does MSNT serve as sole trustee?
MSNT serves as sole trustee –

  • When no co-trustees are designated in the trust agreement
  • When all designated co-trustees resign, die or are unable to carry out their responsibilities as co-trustee.
Are additional fees collected by MSNT when it serves as co-trustee?
MSNT charges an annual fee of $750 for additional fiduciary responsibilities as sole trustee collected as a monthly fee and reflected on the quarterly account statement. When MSNT begins to serve as sole trustee or when a sole trustee account is closed, the fee is pro-rated for the month in which the change occurs. Fees are subject to change.
How does the life beneficiary request a trust distribution when MSNT is sole trustee?
The beneficiary must complete and submit a request for distribution of funds from the trust account. The MSNT distribution request form with completion instructions is available here or MSNT can mail copies upon request. The completed form must be accompanied by documentation to justify the trust distribution such as:

  • Dated, itemized receipts and invoices that support the request and the amount requested
  • One or more written estimates for services/goods requested. If estimates are submitted, dated, itemized receipts must be submitted promptly to MSNT after purchase for documentation in the trust records with any overage to be re-deposited to the trust.

MSNT may request additional documentation. Failure to submit required documentation can result in denial of future requests.

What if the life beneficiary cannot complete the distribution request form? Who else can complete it on the beneficiary’s behalf?
A friend, family member, case worker or caregiver may assist by completing the Request for Funds form.
Where can the beneficiary learn more about how to make requests and use the trust?
Review, download or request a paper copy of the MSNT Guide for Co-trustees and Beneficiaries
How can trust distributions be used?
Permissible distributions include a wide range of services and goods not paid by other sources that are for the sole benefit of the life beneficiary such as dental care not covered by other benefits, insurance and co-pays and deductibles, assistive devices and equipment such as hearing aids and glasses, home modifications for accessibility, other equipment to support independent living, and for the interest and enjoyment of the life beneficiary. It is always advisable to contact MSNT about the allowability of requests prior to commitment or purchase to avoid denials of reimbursements for third parties. As the spendthrift clause of the Declaration of Trusts states, MSNT is not required to honor promises or payment for purchases made by the beneficiary or others related to use of trust funds. More comprehensive information about allowable distributions and MSNT policies for review and approval of distributions is available by contacting MSNT.
What are the federal requirements for how special needs trust funds can be used?
The Social Security Administration (SSA) requires that Supplemental Security Income (SSI) and other public benefits provide for the beneficiary’s basic needs of housing, utilities, and groceries. Consequently, trust funds cannot be used for rent/mortgage, utilities or groceries. Special Needs Trust distributions are to support supplemental needs of the person with disabilities and must be for the sole benefit of the life beneficiary. Failure by MSNT to follow these requirements can jeopardize eligibility for SSI or Medicaid and result in reduction of benefits, termination of benefits or a ruling that the trust is a countable resource that must be used before regaining eligibility.
What else is not allowed?
MSNT will not authorize distributions for firearms or other weapons, alcohol, cash or check to the beneficiary, charitable contributions or gifts to others, tithing to the church, experimental treatment or equipment not approved by the FDA, or purchase of any assets that may jeopardize eligibility for benefits.
If trust funds can’t be paid to the beneficiary, how can distributions be made that will protect eligibility for public benefits?
MSNT strongly encourages that checks be payable to third party vendors (stores where items will be purchased, the doctor providing services, etc). Although MSNT can authorize distributions for reimbursement of third parties, there is a risk that the request can be denied and, if approved, the reimbursement can, in some cases, be deemed income under IRS and SSA rules, causing eligibility issues for the beneficiary.
What if a request is denied?
If a request is denied, a denial form, indicating the reason for denial, will be mailed to the beneficiary. The beneficiary and/or a representative may contact MSNT for additional information about the denial.
Am I required to report the trust to Social Security or Medicaid?
Yes, federal and state rules require that the trust be reported as an asset. However, the asset is not “countable” under federal and state laws and regulations. If you are notified that an eligibility review is underway, please contact MSNT for assistance to document the trust as an exempt asset.
What if my eligibility for public benefits changes or other circumstances change?
Please notify MSNT immediately if you are notified of any change in benefit status or other circumstances change. Please provide a copy of any written denial for MSNT records.