Supplemental benefit trusts (SBTs) and supplemental special needs trusts (SNTs) are designed to protect the assets of people with special needs while still enabling them to qualify for Medicaid.
Federal law (42 U.S.C. § 1396 et. seq.) defines Medicaid, a federal program administered by the states to provide health care, especially long-term care benefits for the impoverished. Medicaid rules vary according to the state in which you live, but there are some federal eligibility requirements that all states must meet, including a severe limitation on assets for qualifying persons.
How do I qualify for Medicaid?
To qualify for Medicaid, you must meet the same asset requirements as you would for Social Security Income (SSI). That means if you are single, you can have no more than $2,000 in countable assets, and if you are married, you can have no more than $3,000 in countable assets.“Countable” assets are simply those that count toward figuring up your eligibility. Many assets including the home in which you live, household goods, tools you use for work and one vehicle are exempt. However, supplemental benefits trusts and special needs trusts enable you to protect assets and still qualify for Medicaid.
What's the difference between a special needs and a supplemental benefits trust?
The terms “special needs trust” and “supplemental benefits trust” are often used interchangeably.
- Technically, a special needs trust is self-funded by the beneficiary. A special needs trust that is self-funded may also be called a first-party or self-settled trust.
- A supplemental benefits trust is set up by a third party, which may be the beneficiary's parents, grandparents, guardian or a state court. As mentioned, supplemental benefits trusts are often also referred to as special needs trusts, even though they are created by third parties. More specifically, some refer to them as third-party special needs trusts.
Before the Special Needs Trust Fairness Act was signed into law at the end of 2016 as part of the 21st Century Cures Act, disabled individuals could not create their own special needs trusts. Only parents, grandparents, a guardian or a court could do so. Federal law, 42 U.S.C. §1396p(d)(4)(A), has been amended to give a disabled individual the ability to create a trust of this kind on their own behalf.
Though trusts that are self-funded and trusts that are funded by third parties may often be referred to by the same name, there is one key difference. Upon the death of the beneficiary:
- The trustee of a self-funded special needs trust must use the remaining assets to reimburse the state for Medicaid befits the beneficiary received.
- The grantor of a supplemental benefits trust for the benefit of someone else may be able to designate other beneficiaries rather than pay Medicaid reimbursements to the state from the trust assets.
Why create a special needs trust or supplemental benefits trust?
People set up these trusts for a variety of reasons. Here are some common ones.
Without supplemental benefits trusts, parents and grandparents would not be able to will their assets to a disabled child without risk of the child losing Medicaid benefits.
A disabled person often may set up a special needs trust for one of these three reasons:
- They owned property before they were disabled.
- They received an inheritance.
- They were awarded substantial damages in a civil case.
How does a trust beneficiary remain eligible for Medicaid?
There are several requirements for setting up a trust to protect the assets of a disabled person so they still remain eligible for Medicaid. Here are the key requirements:
- The trust must be a spendthrift trust. A spendthrift trust enables the beneficiary to use the trust assets but only within certain limitations. Most spendthrift trusts would not qualify as supplemental benefits or special needs trusts, however, because the assets would not be exempt from being considered for Medicaid eligibility. For example, the beneficiary cannot receive an annual distribution of part of the trust funds. The trust is intended to pay for what the state does not.
- The trust must be irrevocable.
- The beneficiary must be significantly disabled.
- The trust must be created before the beneficiary turns 65 years of age.
- The trust must contain “Medicaid payback language” even if repayment does not apply to the specific trust. Once again, third-party supplemental benefits trusts are not required to repay the state for Medicaid.
What are some affordable options to preserve Medicaid eligibility?
If you are disabled, there are other affordable options to protect your assets while remaining eligible for Medicaid.
ABLE accounts. ABLE accounts, created under the Achieving a Better Life Experience Act of 2014, are state-managed trusts, and the disabled or their families can fund them with after-tax dollars. Beneficiaries who self-fund receive income tax advantages.
Pooled asset special needs trusts. Pooled asset trusts are managed by nonprofits for the benefit of disabled persons. You pool your assets with others and receive funds according to your contribution. In some states, even people over 65 may participate. The specifics of pooled asset trusts vary, so you will want to read the fine print. There has been mismanagement for some pooled trusts.
Don't lose your Medicaid benefits
It is not necessary for a disabled person to give up all their assets to qualify for Medicaid benefits. Whether you are disabled, or your child, grandchild or ward is disabled, you can protect assets with a properly executed supplemental benefit trust or supplemental special needs trust.