The 3 parties in a Special Needs Trust
1. Settlor - the person who establishes the trust
The trust can be established by a parent, grandparent, legal guardian or court; it can be established by these same folks or by the individual with disabilities, assuming this individual is not also under a conservatorship or guardianship.
Once the trust is established, the settlor plays little or no role in the trust unless the settlor also happens to be the trustee, which is permitted but not encouraged. However, under no circumstances can the beneficiary be the trustee because this would make the assets countable for purposes of benefits/entitlements. If the beneficiary is a conserved person or is a minor under a guardianship of estate, the Probate Court must authorize the conservator or guardian to establish and fund the trust.
Critical Practice Tip: If a court petition is required to establish and fund the SNT, the process can take weeks. Thus, it is important for personal injury attorneys to engage special needs planning attorneys as early as possible so the trust can be established in a timely manner.
2. Trustee - determines what distributions can be made from the trust and is responsible for the overall management of the trust
A trustee must be identified. This might be a bank, a law firm's trust department, or a non-profit entity. Sometimes a trusted family member may serve as a co-trustee. If the beneficiary is a minor child, usually a parent identifies a person to serve as a trustee.
The trustee typically has the sole, absolute and uncontrolled discretion regarding any distributions from the trust. The trustee can consult with the beneficiary and the family or friends of the beneficiary to help determine what distributions are needed. If Probate Court action was required to establish and fund the trust, then the trustee will likely need to be bonded or the accounts may be restricted.
Important! Since some distributions will reduce benefits, the trustee must know which distributions are permissible and which are not. Click here to see the rules and the list of permissible distributions.
3. Beneficiary - the person with disabilities
This can mean an individual who meets the federal definition of disability, is a recipient of disability benefits, someone with a gambling, drug or alcohol addiction, or just someone who can’t be trusted to prudently invest and manage money.
The federal definition of disability means that:
- the person cannot do work that he or she did before,
- the person has been determined unable to adjust to other work because of a medical condition
- the person's disability has lasted or is expected to last for at least one year or to result in death
The "disability" definition is critical in order to qualify for a self-funded SNT.
In the self-settled trust, the assets in the trust must be used for the sole benefit of this person. The assets can be used for such things as supplemental therapy, field trips, vacations, dental care (not covered by Medicaid, for example) and so forth. The assets are not to be used for items which are covered by benefits. For example, if Medicaid pays 100% for prescription drugs, the trustee should not use trust money for this purpose.