“When you talk to an advisor, it’s important you’re on the same page. Knowing the common acronyms and ideas for a given solution makes it much easier,” said Sally Griffin, Trust Officer with Old National Wealth Management.

 

Griffin often clarifies the below terms and concepts for her clients, so we thought we’d share them now. That way, you can stay a step ahead as you educate yourself on SNTs.

 

Note: if you’re unsure of what a Special Needs Trust is and how it works, please refer to our article on the topic.

Beneficiary:

Primarily, this refers to the special needs individual for whom the trust is created. Secondarily, this can refer to the recipients of funds remaining in the trust, once the special needs individual passes away.

Trustee:

The entity or individual that administers and manages the trust on behalf of the beneficiary.

Donor, Grantor, or Creator:

The individual who funds a trust.

Reason for an SNT: Eligibility for Government Benefits:

Recipients of Medicaid and SSI are subject to income and asset limitations that cannot be exceeded. A Special Needs Trust allows the beneficiary to continue receiving their government benefit(s) even if they receive an influx of funds, or have loved ones who want to give them funds to supplement their lifestyle.

First-Party Special Needs Trust:

This type of SNT is created by an individual with special needs, who will make use of the funds themselves. Typically, the funding comes from an inheritance the beneficiary has received, or a personal injury settlement they’ve become entitled to.

Third-Party Special Needs Trust:

This type of SNT (also known as a Supplemental Needs Trust) is created by a family member who wants to assist a relative with special needs. The trust can be funded through a will (known as a Testamentary Trust) or within the donor’s lifetime (known as a Stand-Alone Trust).

Testamentary Trust:

A type of Third-Party SNT that the donor (a relative of the special needs individual) creates through a stipulation in their will. The trust will not be funded until the donor passes away – and other relatives will be unable to add funds to it.

Stand-Alone Trust:

A type of Third-Party SNT that is created and funded while the donor (a relative of the special needs individual) is still alive. This type of trust also allows other relatives to make contributions, to increase the funds available to the beneficiary.

Irrevocable Trust:

A form of trust that cannot be revoked once it’s created. Most SNTs must be irrevocable. This format protects the funds in the trust from creditors and avoids probate after the beneficiary passes away.

Eligible Expenses:

A Special Needs Trust is meant to supplement Medicaid or SSI income. As a result, funds from a SNT cannot be used for needs covered by those government benefits, such as housing, food, most medical expenses, and property taxes. They can be used for lifestyle enhancements, like entertainment, vacations, clothing, furniture, and medical equipment not covered by a government benefit.

Guardianship of the Person:

Refers to the role of the appointed person responsible for ensuring that the beneficiary (the special needs individual) is properly cared for and that their life needs are addressed in a manner consistent with the mission of the trust.

Guardianship of the Estate:

Refers to the role of the appointed person responsible for ensuring that the funds of the trust are well-managed and dispersed within legal guidelines. Also responsible for paperwork and reporting required by federal and state regulators.

Payback Provision:

All First-Party SNTs and many Third-Party SNTs have a Medicaid payback provision. When the beneficiary (the special needs individual) passes away, the funds in the trust must first be used to pay back Medicaid for benefits received in the beneficiary’s lifetime. Any remaining funds are then disbursed to the named beneficiaries.

OBRA Trust:

This acronym stands for Omnibus Budget Reconciliation Act. In 1993, Congress passed legislation that allowed an individual to create a First-Party Special Needs Trust for themselves while retaining their Medicaid benefits. An OBRA trust is a common form of a Special Needs Trust, but not the only type of Special Needs Trust.

 

If you have further questions about Special Needs Trusts, please contact your Wealth Advisor at 1834.