I have written about special needs trusts in past posts on this blog. SNTs are a safe harbor for the assets of disabled individuals that allows them to receive government benefits and be able to use the trust assets to supplement those benefits, because we quickly find that what the government provides leaves much to be desired. However, these trust are very technical and the laws and regulations can and do change from time to time. A recent Social Security Administration regulation has made some very significant changes that trustees and beneficiaries of SNTs ought to be aware of.
Certain types of SNTs, referred to by attorneys as “first party SNTs”, require payback provisions. If there is anything left in the trust when the beneficiary dies the State must first be paid back all Medicaid benefits that the disabled individual received, before assets can be otherwise distributed. Many SNTs also have early termination clauses that provide for an early end to the trust. The new SSA regulations relate to these early termination clause.
For all trusts created on or after January 1, 2000, upon early termination, the assets must first be used to pay back Medicaid, similar to the requirement at the death of the disabled beneficiary. Additionally, all remaining assets must be payable only to the disabled individual. No one else can benefit from the trust. Finally, the power to terminate the trust early must be given to someone other than the beneficiary.
Some SNTs may already be in compliance with these new rules, but others will not. So what to do? Have a qualified attorney look at your trust and if necessary amend it. Failure to do so will cause the trust assets to be included as an asset owned by the disabled person and cause him/her to lose government benefits.