Special Needs Trust Basics – Definitions

The following was borrowed from the California Department of Healthcare Services web site and provides an adequate definition of SNT’s *  “A Special Needs Trust (SNT) allows for a disabled person to maintain his or her eligibility for public assistance benefits, despite having assets that would otherwise make the person ineligible for those benefits. There are two types of SNTs: First Party and Third Party funded.

1.   First Party 

First party SNTs are funded with assets that belong to the trust beneficiary or to which the beneficiary was legally entitled (e.g., assets from an award or settlement, etc.). These trusts must include federal and state provisions, which require notice and payback to the State upon the death of the trust beneficiary or earlier termination of the trust. The Department of Health Care Services (DHCS) is required to recover up to an amount equal to the total medical assistance paid by Medi-Cal on the trust beneficiary’s behalf.

First party SNTs are classified as either (d)(4)(A) SNTs which are established under 42 USC 1396p(d)(4)(A) or  Pooled SNTs established under 42 USC 1396p(d)(4)(C) :

  • A (d)(4)(A) SNT can only be established for a disabled individual under the age of 65.
  • A Pooled Trust can be established for a disabled individual of any age, and must be established and managed by a non-profit association.  A separate account is maintained for each beneficiary, but funds are “pooled” together for investment purposes.
2.   Third Party funded
Third party SNTs are funded with assets belonging to a person other than the trust beneficiary, and to which the beneficiary never had possession or legal interest.  Third party trusts are not subject to recovery by the Department of Health Care Services (DHCS).”
From the Special Needs Alliance* come the following definitions:
TRUSTEE—the person who manages trust assets and administers the trust provisions. Once again, there may be two (or more) trustees acting at the same time. The grantor(s) may also be the trustee(s) in some cases.  The trustee may be a professional trustee (such as a bank trust department or a lawyer), or may be a family member or trusted adviser—though it may be difficult to qualify a non-professional to serve as trustee.
BENEFICIARY—the person for whose benefit the trust is established. The beneficiary of a special needs trust will usually (but not always) be disabled.  While a beneficiary may also act as trustee in some types of trusts, a special needs trust beneficiary will almost never be able to act as trustee.
REVOCABLE TRUST—refers to any trust which is, by its own terms, revocable and/or amendable, meaning able to be undone, or changed. Many trusts in common use
today are revocable, but special needs trusts are usually irrevocable, meaning permanent or irreversible.  IRREVOCABLE TRUST—means any trust which was
established as irrevocable (that is, no one reserved the power to revoke the trust) or which has become irrevocable (for example, because of the death of the original grantor).
SOCIAL SECURITY DISABILITY INSURANCE—sometimes referred to as SSDI or SSD, this benefit program is available to individuals with a disability who either have sufficient work history prior to becoming disabled or are entitled to receive benefits by virtue of being a dependent or survivor of a disabled, retired, or deceased insured worker. There is no “means” test for SSDI eligibility, and so special needs trusts may not be necessary for some beneficiaries—they can qualify for entitlements like SSDI and Medicare even though they receive income or have available resources.  SSDI beneficiaries may also, however, qualify for SSI (see below) and/or Medicaid benefits, requiring protection of
their assets and income to maintain eligibility. Of course, just because a beneficiary’s benefits are not means-tested, it does not follow that the beneficiary will not benefit from the protection of a trust for other reasons.
SUPPLEMENTAL SECURITY INCOME—better known by the initials “SSI,” this benefit program is available to low-income individuals who are disabled, blind or elderly and
have limited income and few assets.  SSI eligibility rules form the basis for most other government program rules, and so they become the central focus for much special
needs trust planning and administration.
MEDICARE—one of the two principal health care programs operated and funded by government—in this case, the federal government. Medicare benefits are available to all those age 65 and over (provided only that they would be entitled to receive Social Security benefits if they chose to retire, whether or not they actually are retired) and those under 65 who have been receiving SSDI for at least two years.  Medicare eligibility may forestall the need for or usefulness of a special needs trust. Medicare recipients without substantial assets or income may find that they have a difficult time paying for medications (which historically have not been covered by Medicare but began to be partially covered in 2004) or long-term care (which remains largely outside Medicare’s list of benefits).
MEDICAID—the second major government-run health care program. Medicaid differs from Medicare in three important ways: it is run by state governments (though partially funded by federal payments), it is available to those who meet financial eligibility requirements rather than being based on the age of the recipient, and it covers all necessary medical care (though it is easy to argue that Medicaid’s definition of “necessary” care is too narrow). Because it is a “means-tested” health care program, its continued availability is often the central focus of special needs trust administration. Because Medicare covers such a small portion of long-term care costs, Medicaid eligibility becomes centrally important for many persons with disabilities.”
Tomorrow – Types of trusts

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