The Question: What can a supplemental needs trust be used for? Can a supplemental needs trust be used for whatever your loved one wants or needs? How do I avoid risking my disabled loved one’s benefits while using this unique type of trust?
What You’re Facing: A supplemental needs trust is a guardian of your disabled loved one’s health, security, and quality of life. But their government assistance is the other guardian fortifying their future. If you fail to use a supplemental needs trust correctly, you could undermine one of these essential pillars of enjoying the quality of life they deserve. With unique laws governing how you can use these trusts while maintaining eligibility for government benefits, the expert guidance of a fiduciary, such as a professional trustee, and an estate planning attorney are crucial.
The Short Answer: A supplemental needs trust is a legal arrangement that a trustee oversees and manages on behalf of a disabled individual, the beneficiary. You can only use funds from this trust to supplement government benefits, not to replace or duplicate them. These benefits include disability payments, supplemental security income, and Medicaid (Medi-Cal in California.) You cannot use this trust for anything not legally defined as supplemental. But that’s just the start.
Supplemental Needs Trusts vs. Special Needs Trusts: What’s the Difference?
We need to clear something up before we dive into answering, What can a supplemental needs trust be used for? Many people wonder what the difference is between a special needs trust and supplemental needs trust (SNT) because they are often used interchangeably.
The simple answer is there is little practical difference between the two. These serve the same function of providing resources for people with disabilities while ensuring they maintain eligibility for vital government benefits programs.
If someone receives government benefits, there is a cap on how much they can earn. If they exceed this limit, they stop receiving benefits.
There are two different categories of special needs trusts: first-party and third-party. The major difference is the disabled individual creates a first-party supplemental needs trust, while a third party, like a parent or grandparent, creates and funds an SNT.
Other important differences to note include:
- The beneficiary must establish a special needs trust before turning 65. While this trust can continue to hold assets after they reach this age, they cannot transfer any more assets to it. With a supplemental needs trust, however, no such age restrictions exist.
- With a special needs trust, the trust must reimburse the government for medical expenses paid for the beneficiary upon death. But with a supplemental needs trust, this reimbursement requirement does not exist.
- The beneficiary of a special needs trust must have a disability recognized and recorded by the Social Security Administration. In some states, this is also the rule for supplemental needs trust, but it varies from state to state. An estate planning attorney can verify what state laws apply to your SNT for you.
Understanding the nuances of the law is crucial to ensuring your special needs loved one is taken care of, and choosing a trustee is not a decision that you should make lightly. This is why appointing a fiduciary, like a professional trustee, and working with an estate planning lawyer is essential when setting it up and executing it.
Related Article: What Are the Responsibilities of a Trustee of a Special Needs Trust?
What Can a Supplemental Needs Trust Be Used For?
Whether you are creating an SNT or serving as its trustee, it is important to understand that you can only use it for specific purposes. So it is crucial to know the answer to the question: What can a supplemental needs trust be used for?
If you make even a minor mistake in using a supplemental needs trust incorrectly, this can have severe repercussions on your special needs loved one.
People establish and transfer assets into supplemental needs trusts, which a trustee manages, on behalf of a disabled individual who serves as the beneficiary. The trustee cannot pay these funds directly to the beneficiary or be used to replace or duplicate government benefits.
Funds from this trust are specifically intended to be used to supplement government benefits in accordance with the laws that govern these trusts. Government benefits cover a percentage of basic living costs, such as rent, food, and medical care.
These trusts, however, provide a safety net and enhance the disabled person’s quality of life. Supplemental needs trusts can pay for:
- Personal care
- Home care attendants and companions
- Home furnishings
- Out-of-pocket medical and dental care not covered elsewhere
- Transportation
- Massages and acupuncture
- Car and car maintenance
- Rehabilitation and therapy
- Vacations and travel
- Medical equipment
- Glasses
- Classes
- Legal or guardianship costs
- Insurance
- Entertainment and recreation
- Electronic equipment, appliances, and computers
While the law broadly allows using the supplemental needs trust to fund these endeavors and necessities, there are exceptions to be aware of and specific requirements your loved one must meet for it not to impact their benefit eligibility.
This requires considerable experience and expertise in this niche field. Without the specialized knowledge and skills of a professional trustee or fiduciary, a permitted cost could quickly turn into one that costs your disabled loved one their long-term security and quality of life.
“Managing a supplemental needs trust is like walking a balance beam, and it only takes one mistake to see a fall. It is also important to consider what these trusts can’t pay for and understand the unique exceptions to it all to avoid devastating supplemental needs trust violations. On top of that, they need to be adept at trust accounting, have a deep understanding of their fiduciary duty and the consequences of failing to fulfill it, and more. Getting professional help is important to give your loved one the gift of security because there’s a lot to juggle when you are the trustee of this kind of trust.”
– Marcia L. Campbell, CPA, Fiduciary, and Professional Trustee
Related Article: What Can a Special Needs Trust Pay for in California?
Hire a Professional Trustee to Safeguard Your Loved One’s Future
So, what can a supplemental needs trust be used for? One can only use an SNT to supplement the government benefits they receive. But there are complex and nuanced laws that govern these trusts. Even the slightest error can have enormous consequences and potentially undermine the future happiness and well-being of your disabled loved one.
To ensure this doesn’t happen, working with a professional fiduciary, like a professional trustee, and estate planning attorney with specialized expertise is crucial to provide your special needs loved one with the quality of life they deserve.
