Using Trusts to Supplement Existing Benefits

     Often when we discuss trust distributions with clients, a major concern is whether their beneficiaries are capable of responsibly handling a sudden influx of money. In those situations where clients have concerns about the beneficiaries' spendthrift habits, marital difficulties, or potential creditors, we structure distribution provisions to protect the beneficiaries’ assets over a longer period. In other circumstances, clients are less concerned about their beneficiaries' ability to handle money and more concerned about how an influx of assets will affect a beneficiary’s ability to qualify for various forms of government assistance.

     In those situations where clients desire to provide for a loved one receiving some form of state or federal assistance, for example Medicaid or Social Security benefits, the goal is to supplement the government assistance being received, not replace it. A Supplemental Needs Trust, sometimes known as a Wholly Discretionary Trust, is a technique that provides assets to pay for the beneficiary's additional needs that government assistance does not cover.

     This assistance can include providing funds to the beneficiary for a wide variety of uses, including travels, hobbies, cultural experiences, and care not covered by governmental assistance. The trustee of a Supplemental Needs Trust has complete discretion to provide the beneficiary with these funds, limited only by the requirement that a distribution from the trust cannot affect the beneficiary’s ability to qualify for other forms of assistance. This level of discretion does require the client to consider carefully whom they name as trustee of the Supplemental Needs Trust, because that person will have a great deal flexibility and  responsibility for the client’s loved ones after the client passes away.

     An additional benefit of establishing a Supplemental Needs Trust for loved ones who receive government benefits is the ability for others, such as grandparents, to make gifts to that Trust through their estate planning to avoid accidentally jeopardizing the beneficiary’s eligibility for assistance.

     A Supplemental Needs Trust is an advanced planning technique that should be prepared by a professional with experience and expertise in the field. Each trust, just like the beneficiaries of those trusts, is unique and clients should work closely with their professionals to ensure that all the planning they do works together to achieve their planning goals.

Matt Ferrara