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Do You Need a Supplemental Needs Trust

By Lane V. Erickson, Idaho Estate Planning Attorney

As the premier Idaho estate planning law firm, our goal is to help each of our clients create a customized estate plan that will fit their lives and meet their own specific circumstances. We don’t believe in using a cookie cutter approach that provides the exact same forms and estate planning documents to each of our clients. Rather, we know that each person is unique. We know that their family is unique. We also know that the things they want to accomplish through their estate planning are going to be based on their own unique circumstances. One of those circumstances could be that a family member or loved one that they want to provide for through their estate planning is receiving disability benefits or some other type of benefit from a state or federal program.

When a person is receiving benefits based on a financial need, such as disability benefits, there are very stringent and strict rules about the amount of money this person can earn on a monthly basis and also the amount of money they can have in a bank account or some other type of account. If a person who is receiving these types of benefits is given an inheritance it could violate the rules and cause the person to lose these benefits. This is why using a Supplemental Needs Trust as part of your estate planning documents could be very important for you and for the family member or loved one you want to provide for through your estate planning.

The purpose of this article is to talk about what a Supplemental Needs Trust is and who can benefit from receiving this type of a trust. We then discuss how a Supplemental Needs Trust works and how you can create one as part of your written estate plan.

Who a Supplemental Needs Trust is for?

To summarize applicable law, a Supplemental Needs Trust is a very specific type of trust that is created and used for an individual who is disabled to the point where they are unable to work in a regular job and provide for themselves financially. Such an individual is likely receiving Medicaid benefits or some other type of state or federal financial needs benefits to help them be able to sustain themselves with the basic necessities such as food, clothing and a place to live.

A Supplemental Needs Trust is a discretionary trust or a third party trust where a trustee is named who is given complete discretion on when or whether to provide any money from the trust to supplement the needs of the individual who is receiving disability benefits. Money is never given from the trust to the individual directly. Rather, the trustee would use the money in the trust to pay other parties directly to meet the needs of the beneficiary of the trust. For example, if the beneficiary of the trust needed a place to live, the trustee would not give them money so they can go pay rent. Rather, the trustee would pay the rent directly to the landlord for the benefit of the beneficiary.

With this kind of trust, the beneficiary cannot direct the trustee on when or whether or how to distribute funds from the trust. Rather, as stated above, the trustee must be given absolute discretion in making these decisions independent of requests, or instructions from the beneficiary.

How a Supplemental Needs Trust Works?

As stated above, a Supplemental Needs Trust works without giving any money directly to the beneficiary of the trust. The trustee can communicate with the beneficiary and can learn of the needs the beneficiary may have. However, it is critical that the trustee retain complete and absolute discretion on when or whether to use any of the funds from the trust for the benefit of the beneficiary. If complete and absolute discretion does not exist in favor of the trustee, then it doesn’t really matter what you call the trust, it is not a true Supplemental Needs Trust and it may cause the beneficiary to lose their benefits.

There are specific laws and guidelines with regards to accounting, and reports that must be provided by the trustee to the beneficiary. Additionally, as with any other trust, there are specific laws that must be met and followed by the trustee and or by any party who funds the trust. Because of these guidelines and laws, it’s very important that you consult with a qualified attorney if you are considering using a Supplemental Needs Trust as part of your basic estate planning documents.

How a Supplemental Needs Trust is Created?

A Supplemental Needs Trust can be created in a number of different ways. The first way that it can be created is as a stand-alone trust that is immediately funded. In other words, if a parent has a child with a disability who is receiving benefits, that parent can create and fund a Supplemental Needs Trust while the parent is still alive. When this is done, the Supplemental Needs Trust can immediately begin supplementing the needs of the child beneficiary.

Another common way that a Supplemental Needs Trust is created is through a written last will and testament. This is called a testamentary trust which simply means that it is actually created and funded once the parent passes away. This would also be the time when the trustee is appointed and given control over the trust so that it can begin to function and be used for the benefit of the child beneficiary.

This article just touches on the most basic of information having to do with a Supplemental Needs Trust. If you believe that you may need a Supplemental Needs Trust as part of your estate planning, we can help.

Enlist an Idaho Estate Planning Attorney to Help You

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Pocatello 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.

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