December 2, 2023

Having a child with special needs comes with many challenges, especially when planning for their future financial security. A special needs trust (SNT) can be an invaluable tool for parents in Minnesota looking to provide additional resources for their disabled child without jeopardizing their eligibility for needs-based government benefits.

What is a Special Needs Trust?

A Special Needs Trust (SNT), also referred to as a supplemental needs trust, is a unique type of trust specifically designed to hold assets for a person with a disability. The primary goal of an SNT is to provide financial support without disqualifying the person for needs-based government benefits like Medicaid and Supplemental Security Income (SSI).

The trustee, who is usually a parent or a close relative, manages the trust fund and can use it to supplement the beneficiary’s government benefits, covering costs not covered by public assistance payments, such as medical expenses, personal care, and other functional needs. However, to ensure the trust is set up correctly and doesn’t disqualify the beneficiary from receiving these benefits, it’s advisable to consult with a special needs planning attorney.

Benefits of a Special Needs Trust

A properly structured special needs trust provides several valuable benefits for disabled beneficiaries and their families in Minnesota:

  • Does not affect government benefits – Assets held in an SNT are not counted against Medicaid, SSI, or other program eligibility, protecting this vital lifeline.
  • No limits on distributions – SNT funds can be used for any expenses that benefit the beneficiary, giving great flexibility.
  • Legally protected – Assets placed into the SNT are legally protected from creditors and judgments.
  • Customizable terms – SNTs are highly customizable to meet the specific needs and goals of each beneficiary.
  • Provides oversight – A trustee is legally obligated to responsibly manage the SNT and act in the beneficiary’s best interest.
  • Tax planning – Proper SNT administration involves tax planning to preserve more funds for the beneficiary’s needs.

For Minnesota parents of a disabled child, these advantages make an SNT a powerful way to enhance the quality of life without compromising access to vital government benefits programs.

What are the Different Types of Special Needs Trusts?

There are a few different types of special needs trusts you can establish in Minnesota. The type that will work best depends on how you plan to fund and manage the trust assets.

Third-Party Special Needs Trusts

A third-party SNT is the most common type of special needs trust. It is set up and funded by someone other than the disabled beneficiary, usually a parent, grandparent, guardian, or other third party.

These trusts can be either revocable or irrevocable. With a revocable trust, the grantor maintains control and can modify or terminate the trust. An irrevocable trust cannot be changed or undone once created.

Third-party SNTs allow you to name the remainder of the beneficiaries who will inherit any funds left in the trust after the beneficiary dies. This is an important estate planning strategy for many families with special needs members.

First-Party Special Needs Trusts

A first-party SNT is funded with assets belonging to the beneficiaries themselves. This is an option if the beneficiary receives an inheritance, lawsuit settlement, or other large sum of money.

To set up a first-party SNT in Minnesota, the trust must be irrevocable and contain a Medicaid payback provision. This means any funds remaining upon the beneficiary’s death must first repay the state for Medicaid expenses incurred.

Pooled Trusts

A pooled SNT combines multiple trust funds from different beneficiaries. A nonprofit organization manages and invests the funds together in a master trust but tracks each beneficiary’s account separately.

Pooled trusts provide professional trust management at a lower cost. However, beneficiaries forfeit the ability to name their own secondary beneficiaries.

The Ins and Outs of Third-Party Special Needs Trust

A third-party special needs trust, often referred to as a supplemental needs trust, is typically created by parents or grandparents for the benefit of a disabled individual. This type of trust can hold any assets that the grantor wants to use to benefit the disabled person, including real estate, investments, and life insurance policies.

The funds in a third-party SNT can be used to supplement the beneficiary’s government benefits but not replace them. Upon the beneficiary’s death, any remaining assets in the trust can be distributed to remainder beneficiaries without the need for repayment to the state’s Medicaid division.

When to Consider a First-Party Special Needs Trust

A first-party SNT, also known as a self-settled or (d)(4)(A) trust, is funded with assets belonging to the person with a disability. The funds belonging to the beneficiary may come from various sources, such as an inheritance, personal injury settlement, or back payments from Social Security.

One of the main differences between a first-party SNT and a third-party SNT is the payback provision. Upon the termination of the trust or the death of the beneficiary, the state’s Medicaid division must be reimbursed for the services it provides to the beneficiary. Any remaining funds can then be distributed to residual beneficiaries.

How to Set Up a Special Needs Trust in Minnesota

Setting up a special needs trust involves careful planning and execution. These steps provide an overview of the process:

  1. Decide on your goals for the trust. Determine how you want funds to be used, who should manage the trust, and what should happen to the remaining assets when the beneficiary dies.
  2. Choose a trustee. Select someone reliable to manage the trust assets. This is often a family member, lawyer, bank trust officer, or financial advisor.
  3. Consult an attorney. Have a lawyer familiar with SNTs in Minnesota create customized trust documents to reflect your goals. Improperly worded trusts can result in loss of government benefits.
  4. Fund the trust. Transfer cash, investments, or other assets into the trust account. You can also name the trust as a beneficiary on financial accounts or life insurance policies.
  5. Invest the assets. Work with your trustee to invest the trust funds appropriately to generate income for your beneficiary’s needs.

With careful planning, an SNT can greatly enhance your disabled loved one’s quality of life in Minnesota. Consult with an estate planning attorney to create the best trust strategy for your family’s unique situation.

How A Special Needs Planning Lawyer Can Help

Setting up a properly drafted special needs trust is crucial to maintaining your disabled loved one’s government benefits in Minnesota. The experienced attorneys at Safe Harbor Estate Law have helped numerous families establish SNTs to provide for their special needs members.

They work to understand your family’s needs and goals fully, then customize an SNT solution. Their lawyers stay up to date on all regulations around special needs planning to ensure your trust meets all legal requirements. Safe Harbor Estate Law can provide the guidance you need to protect your disabled beneficiary’s best interests.

Contact their office online at today to schedule a consultation with a special needs trust attorney in Minnesota.