Solem, Harris & McKinley, P.C.

Disability & Special Needs Trusts

Disability and Special Needs Trusts

 
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SPECIAL NEEDS TRUST 

A special needs trust or SNT (also referred to as a supplemental needs trust) is a discretionary non-support trust designed to provide for a disabled person's supplemental care, which is defined as items and services not provided by any public benefit programs such as Supplemental Security Income ("SSI") and/or Medicaid.  These trusts are typically set up with assets not belonging to the disabled person.


DISABILITY TRUSTS 

Disability trusts are authorized under both federal and state law to protect assets for a disabled individual while maintaining eligibility for public benefits. These trusts are set up with assets belonging to the disabled person.  It is important to set up the right kind of trust because there are important differences between SNT and disability trusts.  

In both types of trusts, funds are transferred into the trust and managed by a "trustee". The trustee is responsible for managing, investing, and distributing the assets or property of the trust.

The trustee holds the funds for the benefit of the disabled person, called the "beneficiary".  The person who establishes the trust is called the "grantor" or "settlor".

 

COMPLIANCE REQUIREMENTS FOR DISABILITY TRUST 

In order for the disability trust to be legally exempt as an asset, it must comply with the following requirements:

  • The beneficiary cannot compel, control or direct distributions.
  • Trust funds should not be used for food or shelter related expenses or for services already provided by a public or private benefit program.
  • The trust must be irrevocable, i.e., it cannot be revoked or cancelled.

Additionally, the beneficiary of the trust must meet certain requirements as follows:

  • The beneficiary must be under age 65 and "disabled" as that term is defined in Social Security law.
  • The State must be named as a remainder beneficiary with regard to any funds remaining at the beneficiary's death to the extent of medical assistance paid.
  • The trust must be established by a parent, grandparent, legal guardian or court. In some circumstances a trust may be set up by the disabled person himself or herself. 
  • The trust must be approved by the State.  Regular accounting must be provided to the state as requested.  This is a Colorado rule only, other states may have different rules. In cases once disabled people are 65, an attorney must always be consulted. Use of a POA is not accepted.

POOLED TRUSTS 

A "pooled" trust is an alternative to a disability trust. It performs the same functions and is also authorized by state and federal law. Each beneficiary has a sub-account, within the pooled trust, containing their own funds. There is no age limitation on participants. 

Upon the death of a pooled trust beneficiary, the funds are retained by the non-profit organization, managing the pooled trust, rather than being paid to the state. A plan must be developed to prove to the state that all funds should be spend during the individual's lifetime if the disabled person is 65 or over. The pooled trust is the only trust that can be used for a disabled person age 65 and over.