Poorly Drafted Special Needs Trusts May Not Prove “Special”

Posted on: May 2nd, 2011 by Lawrence A. Friedman

Calling a trust special needs trust or supplemental needs trust doesn’t prevent it from disqualifying the trust beneficiary from government aid like SSI, Medicaid, and free group home placement.  So-called SNTs will prove disqualifying unless drafted and administered properly.  At a minimum, an SNT must not have any obligation to fund the beneficiary’s support or distribute at fixed times, and the trust beneficiary must not have the right to terminate the trust and capture the amounts in it.  Although not stated explicitly, such disqualifying obligations and rights can be implied from poorly drafted trust terms as sometimes arise when the person drafting a so-called SNT lacks expertise in this arcane area of the law.  In addition, a trust containing amounts attributable to the trust beneficiary (such as a personal injury recovery, outright inheritance, or divorce share) must contain numerous provisions mandated by complex Medicaid regulations.  Finally, even a well drafted trust can disqualify the beneficiary for government aid if it isn’t administered properly.

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