Why a Special Needs Trust?
How to Protect Medicaid and SSI 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 eligible 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 ensuring 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 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 Midwest Special Needs Trust (MSNT) has some advantages over a trust company that administers all types of trusts.
- MSNT is a Missouri-based non-profit organization established by statute (402.199– 402.208 RSMo) in the State of Missouri for the purpose of administering special needs trusts. Special needs trusts are the only type of trust accepted and administered by MSNT.
- MSNT is committed to making trust services accessible and affordable for low and moderate income individuals and families.
- MSNT staff include certified benefit specialists who remain current and knowledgeable about SSI and Medicaid regulations for proper establishment, administration and closure of special needs trusts.
- MSNT is required by statute not to make distributions from trusts that negatively affect the benefits of the beneficiary.
- MSNT provides a standard trust agreement that is compliant with applicable Social Security and Medicaid statutes, regulations and policies, reserving the right to amend the trust language to comply with any changes in federal and state requirements.
- MSNT assists beneficiaries and families by providing written documentation that the trust is an exempt asset for Social Security and Medicaid authorities for eligibility determination and re-determination.
MSNT will open and administer a special needs trust account for adult and minor beneficiaries living in:
- Iowa (third party trusts only)
If the beneficiary of a trust later relocates outside the MSNT service area within the United States, MSNT will continue to administer the trust consistent with the terms and conditions of the Master Trust.
A beneficiary must be disabled as determined by the Social Security Administration to be eligible for an MSNT special needs trust.
- For minor children, contact MSNT to discuss eligibility criteria and considerations.
- For adults who are 65 years of age and older, contact MSNT to discuss state Medicaid policies for transfer penalties related to special needs trusts.
Funding a Special Needs Trust
Special needs trusts may be established with the disabled individual’s own funds (first-party or self-settled 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.
- Social Security back payments.
Special needs trusts established with the disabled individual’s own resources must contain a Medicaid pay back clause for early termination or at the death of the beneficiary.
How a Special Needs Trust Can be Used
The funds of a special needs trust must be used for the sole benefit of the named beneficiary and may be used only to supplement income from benefits. The terms and conditions of the trust document and applicable state and federal law, regulation and policies establish requirements for trust use. If a trust is improperly administered or distributions are made for prohibited purposes, the trust may be deemed by Social Security or Medicaid as a “countable” asset, potentially resulting in reduction or loss of important public benefits. Generally, 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.
- Personal property and services.
Review of trust distributions include review of estimates/receipts for the requested item(s) or service(s) and the rate of trust use is a factor considered by MSNT in its role as trustee. Detailed procedures for requesting, reviewing and approval or denial of trust distributions are provided in the MSNT Guide for Co-trustees and Beneficiaries.
The donor has the option of naming a co-trustee(s) in the trust agreement to assist in identifying beneficiary needs and processing distribution requests. However, MSNT is trustee for all trusts established with and administered by MSNT and has final authority related to trust distributions and administration of the trust account.
How to Establish a Special Needs Trust
Two basic steps must be competed to create a special needs trust with MSNT.
- The first step is to complete the legal documents required to establish the trust, including background information necessary for MSNT to properly administer the trust.
- The Declaration of Trust documents are generally completed by or with the direction of an attorney.
- MSNT documents require completion of fields that 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.
- MSNT requires a minimum opening deposit of $1000, 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 $1000 and the rest of the enrollment fee is paid.
- View a more detailed comparison of active and inactive trust features.
MSNT strongly encourages persons interested in setting up a trust to have an attorney assist in completing the documents. MSNT provides more detailed written instructions for completion of necessary documents and MSNT staff is available for consultation.
Which Trust Document Should Be Used – First Party or Third Party?
Trusts with MSNT are established under the Midwest Special Needs Trust Master Trust. Two sets of trust documents are available for completion and the first step is to determine whether the trust is a first party trust or a third party. Brief explanations are provided below or view a more detailed comparison.