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SEVEN PLANNING CONSIDERATIONS IN THE CONTEXT OF SELF-SETTLED SPECIAL NEEDS TRUST

by Thomas D. Begley, Jr., CELA

Availability. Assets in a Self-Settled Special Needs Trust (“SSSNT”) are not considered available for Supplemental Security Income (“SSI”) or Medicaid eligibility purposes. The reason is that the trustee is given sole discretion with respect to distributions from the trust. The beneficiary cannot control distribution or revoke the trust. Special needs language should be included for guidance to the trustee with respect to distributions.

Transfer of asset penalty. There is no transfer of asset penalty for SSI and Medicaid, because there is a statutory exemption under 42 U.S.C. § 1392b and 42 U.S.C. § 1396p(d)(4)(A).

Payback. A payback to Medicaid is required by law. The payback is for all Medicaid benefits received by the beneficiary since birth. It is not sufficient to pay back Medicaid benefits received from the date of the establishment of the trust to date. In the case of a personal injury settlement, the Medicaid payback is not limited to medical assistance related to the personal injury. All medical assistance provided by Medicaid from birth, whether or not related to the injury, must be included in the payback.

Funding. SSSNTs are generally funded by personal injury recoveries, inheritances, equitable distribution, alimony or child support. However, any asset can be used to fund an SSSNT.

Tax considerations.

  • An SSSNT is considered a grantor trust. Therefore, the income earned by the trust is taxed to the beneficiary at the beneficiary’s tax rates.
  • Transfers to an SSSNT are not completed gifts.
  • Estate tax. Assets in an SSSNT are included in the estate of the beneficiary.

Estate recovery. There is no Medicaid estate recovery against an SSSNT, but a payback provision has the same effect.

Elective share. Assets in an SSSNT would be considered subject to the elective share.

 

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