On frequent occasions, we are asked how clients should make gifts and distributions to family members with disabilities. The reason for concern is a person who is disabled may become ineligible to receive government benefits if assets are gifted or distributed to them directly.
A great option is to use a supplemental needs trust for these cases.
A supplemental needs trust can be established for the benefit of any person with a disability who is under age 65. This trust must be established by a person who is not the beneficiary, the beneficiary’s spouse or a person that has a legal obligation to provide support or reimbursement to the beneficiary.
Additionally, the supplemental needs trust must be funded with assets from someone other than the beneficiary, the beneficiary’s spouse or a person with a legal obligation to support or reimburse the beneficiary.
The assets held by the trust can be used for the needs of the beneficiary that are not provided for by government benefits. The purpose of the trust is to enhance the person’s publicly funded benefits, such as Social Security and Medicaid. For example, this trust can provide for medical care and treatments not covered by the benefits program, recreational activities, vacations and educational opportunities.
The beneficiary cannot have direct access, control or demand rights to the assets of the trust and cannot be the trustee of the trust. The trustee must have discretionary power to distribute the assets to provide for the beneficiary’s supplemental needs. The assets of the trust should never be distributed directly to the beneficiary. Rather, the trustee should use the trust assets to purchase the items or services needed by the beneficiary.
The person who creates this trust is called the grantor. The grantor can create this trust while he or she is living or after his or her death. After death, this trust can be done through a will or revocable living trust.
It is often best to create the supplemental needs trust while the grantor is living. This ensures the trust is created under the current law, which allows for these types of trusts. The grantor can make provisions in his or her will or revocable living trust to distribute assets to the supplemental needs trust. The grantor could also make lifetime gifts to the trust for birthdays, Christmas or graduation. The grantor can state who the assets are distributed to after the death of the beneficiary or when the trust ends.
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers, P.A. Contact him at firstname.lastname@example.org.