Before the settlement is finalized, an attorney drafts this trust to hold and disburse settlement proceeds and potentially other property for the benefit of the person receiving the settlement.
Certain benefits are needs-based, meaning eligibility hinges upon any income or assets. Such benefits include SSI and Medicaid. Receipt of settlement proceeds therefore can endanger eligibility for such needs based programs such as SSI, Medicaid and others. Social security disability is based not on income and assets, but on disability and time paid in to the system and is generally not jeopardized.
Supplemental Needs Trust Requirements
A correctly established supplemental needs trust will protect the settlement proceeds, so benefit administrators will not consider funds in the trust or disbursements as resource or income, disqualifying the individual. To accomplish this goal, the trust typically gives the trustee sole discretion over trust disbursements and bars the trustee from making disbursements that would impair eligibility. The trust must be created for the beneficiary’s sole benefit and bar creditors from going after trust assets.
Implementation of a supplemental needs trust has as its basic objective to protect settlement funds as “non-countable” for purposes of benefit eligibility.
Supplemental needs trusts can be targeted to various benefits, often SSI, whose eligibility requirements are established under 42 USC §1382. The test requires that the recipient have no more than $2,000 worth of assets – outside of specific assets excluded under §1382b. Therefore, by way of example, distributions from the trust are kept well within the statutory requirements and commonly paid out to third parties providing supplemental needs.
Supplemental Needs Trust Drafting
There is no one-size fits all “form” for a supplemental needs trust. Trust documents are highly individualized and specific to the individual needs of the particular client. An experienced trust attorney needs to review all of the circumstances of the individual, identifying all benefits, current or potential.
My office also requires that an individual’s caseworkers be notified in advance. This protects against any future claim of attempted circumvention of the law and underscores the intent and practice to fully comply with regulations intended to help those in need.