Berge & Berge, LLP Blog

Friday, January 29, 2016

Changes To The Eligibility Requirements For First Party Special Needs Trusts

What terms must be found in a Special Needs Trust in order for the beneficiary to be entitled to government benefits?

A Special Needs Trust (SNT) is a legal instrument used for the benefit of individuals who cannot support themselves due to a disability. Assets are held in the trust and not by the beneficiary making the disabled person eligible for various types of needs based government benefits such as Supplemental Security Income (SSI) and Medi-Cal. Currently, the Social Security Administration (SSA) is reviewing these trusts with stricter scrutiny. The agency will now require SNTs to contain certain terms in order to qualify for needs-based benefits.

These changes have been made with regard to first party SNT’s. A first party SNT is one that is set up by a relative or pursuant to a court order, but are funded by assets that belonged to the beneficiary him or herself. According to federal law, assets that remain at the termination of a first party SNT must be used to pay back the government for any benefits that were provided, particularly SSI and Medi-Cal.  Now, trust terms must actually provide that all states will be paid back with remaining trust assets, not just the State of California. 

Another change made by the SSA is that SNT trusts must actually be set up by a relative or pursuant to a court order, not by an agent of the disabled person, even one that is related.  Lastly, the SSA has also become stricter in enforcing the “sole-benefit rule” which means that trust assets can only be used for the benefit of the disabled party.  Previously funds could be used for the indirect benefit of the disabled person, such as to pay for a person to visit him or her, this is no longer an option.

Any trusts that have been previously approved by the SSA are safe unless they are subject to changes via an amendment. 

Deciding whether to use an SNT and then drafting one that is appropriate is a decision that is best made with the guidance of a skilled elder law and special needs planning attorney.  

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