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Special Needs Trusts: Allowable Expenses

By Greg Herman-Giddens

Special Needs Trusts (SNTs), also sometimes referred to as Supplemental Needs Trusts, are used to provide supplemental benefits to disabled or elderly persons receiving governmental benefits (such as Medicaid and SSI) while not disqualifying them for the benefits. 

There is a distinction between "self-settled" or "first party" trusts, which are funded with the disabled persons own assets, and most often called special needs trusts, and "third party trusts", which are set up by another person and funded with that person's money.  The latter are often referred to as supplemental needs trusts.  The laws regarding SNTs are very complex, and such trusts should be drafted only by attorneys experienced in that area of the law.

The administration of SNTs is also complex.  Only certain types of expenditures are allowed.  The wrong type of payments from the trust can disqualify the beneficiary from receiving governmental benefits.  I currently serve as trustee for several SNTs - given the many needs of a disabled beneficiary, it can be a demanding job.

For examples of what expenditures from an SNT are allowable, and those that aren't, click "Continue Reading."

 

Allowable Expenses from a Special Needs Trust
(also applies to Pooled or Supplemental Needs Trusts)

A Special Needs Trust (SNT) is set up to cover the expenses of goods and services that are supplemental to the beneficiary's basic needs (food, shelter and clothing). Food, shelter and clothing expenses cannot be covered by the trust. The following is a list of examples of some common expenses that are allowable through a SNT. This list gives a good idea of how a SNT can be creatively utilized to help enhance the quality of a person's life, and is by no means all-inclusive. Some examples of allowable expenses are:

...         Medications (essential and non-essential) not covered by Medicaid

...         Medical equipment not covered by Medicaid

...         Medical, nursing and dental care, tests not covered by another source

...         Independent evaluations

...         Insurance premiums (health, dental, life, auto, and renter)

...         Homeowner insurance premiums ONLY if the insurance is NOT a mortgage requirement

...         Personal assistance

...         Private counseling and/or case management

...         Guardianship and advocacy services

...         Any expenses related to owning and operating one car

...         Computer hardware and software

...         Private lessons and materials

...         Testing for any purpose (vocational, medical, psychological, etc.)

...         Job coaching

...         School or camp tuition

...         Entertainment/recreation tickets

...         Travel expenses such as transportation or hotel (but not food)

...         Travel expenses for a companion

...         Equipment (electronic, entertainment, adaptive, special interest)

...         Home appliances

...         Furniture and household items

...         Gardening and lawn care

...         Cable television

...         Telephone services (local and long distance)

...         Internet access

...         Curtains, towels, linens, decorative items

...         Interior decorating

...         Home renovations to improve accessibility (but not additions)

...         Gifts for the beneficiary at holidays

...         Veterinary services, pet care, supplies

...         Office supplies

 

Expenses Not Allowable from a Special Needs Trust
(also applies to Pooled or Supplemental Needs Trusts)

      An SNT is set up to cover the expenses of goods and services that are supplemental to the beneficiary's basic needs (food, shelter and clothing). This means that the trust cannot be used for food, shelter or clothing costs on a regular basis or the trust will count as a resource to the beneficiary, which can affect eligibility for government benefits like Supplemental Security Income and Medicaid. The trustee must use discretion in making distributions, keeping the beneficiary's government benefits in mind when doing so. The following is a list of basic need expenses that are not allowable through a supplemental needs trust.

...        Cash given directly to the beneficiary for any purpose
(because the beneficiary can use it for basic need support)

...        Food or groceries

...        Restaurant meals (except if given as an occasional gift)

...        Clothing (except if given as an occasional gift)

...        Rent or mortgage payments

...        Property taxes

...        Homeowners or condo association dues

...        Homeowners insurance if the insurance is a mortgage requirement

...        Utilities such as electricity, gas and water

...        Utilities hookup or connection charges

Source:  Life Plan Trust, Inc. (a Pooled Trust Provider)

 

Full post as published by North Carolina Estate Planning Blog on March 12, 2010 (boomark / email).