Special Needs / Supplemental Needs Trust
For Medicaid purposes, the Department of Social Services (DSS) will consider trust assets available to an applicant if the applicant used his own resources to create the trust, or certain other individuals established the trust for the benefit of the applicant. A trust established by any of the following individuals may count as a resource available to the applicant: (1) the individual; (2) the individual's spouse (unless at death); (3) a person, including a court, with legal authority to act in the stead of the individual; or, (4) a person, including a court, acting at the direction or upon the request of the individual or the individual's spouse.
The trust rules apply without regard to: (1) the purposes for establishment of the trust; (2) whether the trustees have or exercise any discretion under the trust; (3) restrictions on when or whether the trustees may make distributions from the trust; or (4) any restrictions on the use of distributions from the trust.Revocable Trusts. In the case of a revocable trust:
- DSS will count the entire trust principal as a resource available to the applicant;
- Payments from the trust to the grantor will count as income; and
- DSS will treat any payments from the trust to individuals other than the grantor as assets disposed of by the individual for purposes of the transfer of assets rules (subject to the sixty month look back period).
- The portion of the corpus of the trust and the income on the corpus which the individual could receive count as resources available to the individual;
- Payments from the corpus or income of the trust count as income to the individual; and,
- DSS will treat payments for any other purpose to any other individual as a transfer of assets by the individual (subject to the sixty month "look back" period).
SUPPLEMENTAL NEEDS TRUSTS FOR THE BENEFIT OF THE APPLICANT
Assets placed in trusts established during the applicant’s life, known as living trusts or inter vivos trusts, often count as resources available to the applicant. However, trusts created through someone else’s Will (called a testamentary trust) or trust for the benefit of the applicant receive a substantially different treatment. Provided the trust instrument does not require mandatory distributions to the applicant, then the trust property should not count as an asset of the applicant.
The most important issue here is that these assets were not added to the Trust by the applicant. The assets could come from a relative, from a friend, etc. If the assets are from a spouse, the trust should be a testamentary trust, and the same rules apply.
Furthermore, because the assets placed in trust did not originate from the applicant, no transfer sanctions should apply. At least, the state and local Medicaid agencies have not yet made any arguments that the creating of such a trust is a penalized transfer. Therefore, creating a trust within the Will that requires the Trustee to make distributions only at the Trustee’s discretion for a Medicaid beneficiary remains a viable planning technique.