Changes to the rules governing First Party Special Needs Trusts (SNTs) as a result of challenges from the U.S. Social Security Administration make it imperative that any Special Needs family with a First Party SNT give serious consideration to establishing a Third Party SNT.
A First Party SNT is created by a parent, grandparent, conservator or the court to receive assets belonging to the beneficiary and must contain certain provisions regarding eligibility to receive SSI and, if you are a California resident, Medi-Cal benefits. The trust beneficiary is permitted to transfer assets from a lawsuit settlement or an inheritance to the trust and continue to be eligible for government programs. The trustee may use the funds to supplement but not replace the government benefits.
When the First Party SNT terminates, federal law requires that any remaining assets must first be used to reimburse SSA and the California Department of Health Care Services. Now, regardless of how the trusts were written, the SSA is reimbursed first, followed by California Medi-Cal claims and any other state that may have provided any benefits, regardless of the residence of the beneficiary.
To qualify as a First Party SNT, the trust must be established by the parent, grandparent, conservator or the court. How the trust is created, and if the trust is created by parents in the role of agents or as parents makes a critical difference as to whether the trust will be considered valid.
The application of rules concerning the use of trust assets, known as the “sole benefit” rule, has become more restrictive. Family members who do not hold medical certifications or who are not approved to provide care may not be paid by the trustee to serve as care providers. Travel expenses for family members to visit the beneficiary may not be paid for by the trust.
Meetings between advocates for the Special Needs community are taking place with representatives from the SSA to discuss these changes. If your family has a First Party SNT, and if you would like to learn how these changes may affect you, please call our office.
Source: Your Legacy and Peace of Mind: Upheaval in the world of First Party Special Needs Trusts, Lake County Record-Bee, 12/01/15.