T. Edmund Spinks, Esq. providing legal representation in Estate Planning, Elder Law and Special Needs.
If you’re looking for personalized attention and real results, call our offices today at (813)651-1233 for a consultation.

Third-Party Supplemental Needs Trusts

If you want to provide for a loved one who is disabled or has special needs when you are no
longer here, care must be taken to ensure that the inheritance you leave will help rather than
harm your loved one. An inheritance received outright could negatively impact your loved one if
he or she is currently receiving government aid or benefits or will need to apply for aid in the
Government benefits for individuals with mental or physical disabilities, such as Supplemental
Security Income (SSI) or Medicaid, are need-based. To receive these benefits, an individual
must pass a means test to ensure that the individual does not have adequate money or property
that could be used to pay for care, such as nursing home costs, in-home care, medical
equipment, therapy, or other necessities for proper care and living expenses. Suppose an
individual with a disability or special need has too many resources, including property, money,
or income. In that case, the individual will either be ineligible for government aid or may be
subject to a penalty period during which the individual is required to spend down the money,
own no property (unless it is co-owned by a spouse), and have little to no income in order to
become eligible for aid.
Creating a special needs trust (SNT), also sometimes referred to as a supplemental needs trust,
can help you provide for a loved one who is disabled or has special needs while maintaining
your loved one’s current benefits or leaving open the option for need-based governmental aid in
the future, even if your loved one receives an inheritance. As long as the SNT meets certain
legal criteria, the existence of the SNT and the amount of money and property inside it will not
affect your loved one’s means test.
There are two types of SNTs: a first-party SNT (also called a self-settled SNT or d4A trust) and
a third-party SNT.

First-Party Special Needs Trust

Authorized under federal law1, a first-party SNT is created by a disabled individual (trustmaker)
using funds received through inheritance or a legal settlement. A first-party SNT can also be
created by an individual who later becomes disabled and wants to qualify for government aid
who has an income or asset limitation (means test). There are two types of first-party SNTs,
both requiring the trustmaker to have the mental ability to create a trust: individual and pooled.
Individual first-party SNTs are funded with (i.e., the trust owns) property that actually belongs to
the disabled individual. The property in this trust must be used for the sole benefit of the
disabled trustmaker, meaning the trustmaker is the only beneficiary of the trust. The trustmaker
must be under the age of sixty-five and meet the definition of “disabled” when the trust is
created. A pooled first-party SNT can be created by a disabled individual over the age of sixty-
five in most states, but it may also be created by the parents, grandparents, or guardian of the disabled individual. The individual must also state that, at the disabled beneficiary’s death, the
remainder of the trust property, up to the amount paid by the government aid (i.e., Medicaid) on
behalf of or to the disabled beneficiary, must be paid back to the government. This is often
referred to as state recovery of the aid the government paid to or on behalf of the disabled
person. Any remaining amount can be paid to other beneficiaries that the disabled beneficiary
named in the first-party SNT trust agreement.

Third-Party Special Needs Trust

By contrast, a third-party trust can be created by any person wishing to give money or property
to an individual who is, or may become, disabled and therefore needs to apply and qualify for
governmental aid. A third-party SNT can be created through a revocable living trust or a will
(though an SNT created in a will would be subject to the time and expense of the probate
process before it is officially created). A third-party SNT may also be a standalone, separate
trust, either revocable (modifiable) or irrevocable (unmodifiable). A third-party SNT, often
created by a disabled individual’s parent (trustmaker), makes it easier for other people, such as
grandparents, family members, or others to name the trust as a beneficiary or to gift property or
money to the trust for the benefit of the disabled beneficiary. If you are the parent of a disabled
individual, consider adding a third-party SNT to your estate plan and let your family members
know it exists. In lieu of cash or other direct gifts, people can use the trust to receive gifts or an
inheritance, knowing that it will be set aside for their disabled loved one without hurting their
loved one’s current government aid or any help they may need in the future. Any property or
money in the third-party SNT will not be a countable resource of the beneficiary for any means-
tested government benefit program.
The primary difference between a first-party and third-party SNT is that a third-party SNT does
not require the government to be the beneficiary after the disabled beneficiary dies. Rather, the
trustmaker remains in control and can name the ultimate beneficiary of any remaining trust
property after the disabled individual’s death. This makes a third-party SNT an ideal solution if
providing for a disabled loved one is your priority but you want to maintain some control over the
remaining property and money.

Receiving Money from a Special Needs Trust

Both first-party and third-party SNTs must limit the payments made by the trustee to or on
behalf of the disabled beneficiary, meaning that the trust property should only be used to
supplement not replace what the disabled beneficiary is receiving in the form of government aid.
Depending on the limits set forth by the government program providing the benefits to the
disabled beneficiary, there may be a limit on the amount that may be spent on personal items.
Trustees must take great care when giving money to or spending money on behalf of the
disabled beneficiary to follow both the trust instructions as well as the laws and rules of the
government program providing the benefits to the disabled individual to prevent the disabled
individual from being disqualified or kicked off the aid program.

If you would like to provide for an individual who is disabled or has special needs at your death,
it is important to do so in your estate plan. A properly drafted and funded SNT can ensure that
your loved one maintains eligibility for potential government aid and also still has the funds to
supplement the aid your loved one might receive. We can help discuss your options. Please call
us today for an in-person or virtual appointment.