Nope. It is an overview of Special Needs Trusts (thus the SNT) and what they offer for disabled Alabamians as a complement to governmental entitlements such as Supplemental Security Income (SSI) and Medicaid. Use this information as a refresher for yourself or send the link to someone you know who needs a good understanding of what SNTs offer.
What is a Special Needs Trust?
A Special Needs Trust (SNT), sometimes called a Supplemental Needs Trust, is a trust that helps protect a disabled individual’s assets. Assets are placed in an SNT which allows the disabled individual to meet the financial requirements to receive government benefits such as SSI and Medicaid. The trust funds are then used to supplement the needs of the disabled individual, helping pay for things SSI and Medicaid do not cover.
Is there more than one type of Special Needs Trust?
Yes, there are three types of SNTs – First-Party, Third-Party, and Pooled. You choose the type of SNT based on how the trust will be funded.
First-Party SNTs are funded with the disabled individual’s assets. Here are some examples of situations where a First-Party SNT may be used:
- An individual entering skilled nursing care needs to qualify for Medicaid benefits.
- A disabled individual has received a court settlement or judgment (such as a personal injury case).
- A disabled individual received assets through an inheritance, gift, child support, or alimony.
A First-Party SNT is always irrevocable. A trustee administers the trust over the course of the disabled individual’s life and uses the funds in trust for the disabled individual’s needs. Upon death, any assets remaining in the trust are subject to a Medicaid pay-back provision. Medicaid can submit a request to be reimbursed for medical benefits it paid on behalf of the disabled individual, to the extent that the trust has funds remaining to pay the request. This pay-back provision is a requirement of federal law to establish a First-Party SNT.
Third-Party SNTs are funded with assets belonging to someone other than the disabled individual such as:
- Proceeds from parents’ revocable living trust
- Proceeds from parents’ testamentary SNT
- Proceeds from a stand-alone SNT created by the parents (used most often when the grantor wants to gift assets or use a life insurance policy to fund the SNT)
- Proceeds parents use to create a trust with Alabama Family Trust for their child
A Third-Party SNT can be either revocable or irrevocable. A huge benefit to the Third-Party SNT is that there is no Medicaid pay-back provision, so the Grantor can choose the remainder beneficiary. Please note: Any assets belonging to a disabled individual should NEVER be put into a Third Party SNT.
Pooled SNTs may be funded with the disabled individual’s assets or a third party’s assets. So, a Pooled SNT can be either First-Party or Third-Party trust. The key to a Pooled SNT is the disabled individual’s age. If the disabled individual is 65 years of age or older, the law requires that they must use a Pooled SNT. A Pooled SNT is managed by a non-profit organization like Alabama Family Trust. With a Pooled SNT, separate accounts are maintained for each beneficiary of the trust, but for purposes of investment and management of funds, the trust pools these accounts.
Every disabled individual’s situation is unique. It is wise to confer with an attorney to help you decide which is the correct SNT for your situation.
Who manages the SNTs?
Special Needs Trusts can be managed through private trust companies or through a non-profit company like Alabama Family Trust, created by the State of Alabama Legislature to provide top administration for a non-profit cost.
Alabama Family Trust has administered SNTs for disabled Alabamians for over 25 years. Alabama Family Trust uses Warren Averett Asset Management to grow trust funds through a pooled-assets structure to provide lower investment and management fees than many for-profit firms can offer. The pooled-assets structure means that Alabama Family Trust can support SNTs from the unusually low minimum balance of $1,500 to millions.
To establish a SNT with Alabama Family Trust, you can download all the paperwork directly from the documents and forms section of the Alabama Family Trust website. We recommend consulting with an experienced attorney to determine which SNT is right for you.
Final exam of SNT 101
Review your estate plan if you have planned inheritances to loved ones who are disabled and receive governmental entitlements. You do not want to endanger those benefits which were likely a challenge to get in the first place. Make changes with an experienced estate planning attorney as needed and contact Alabama Family Trust during your planning.
If a disabled family member is receiving any assets through gifts, inheritance, child support, alimony, or settlement or judgments, it is time to talk to an attorney about setting up an SNT.
If an elderly loved one now needs skilled nursing care, read through the Alabama Family Trust blogs and then talk to an attorney experienced with special needs trusts before you embark on a Medicaid spend-down process.
Take action now and you get an A+ on SNT 101.