Over the years in my practice I have encountered many situations in which a discretionary trust was written into a Will to receive the inheritance of a person who had disabilities. Often the testator (person who was signing the Will) specifically wanted to protect the funds becuse they knew the person with disabilities relied on government programs like Medicaid or SSI. However, since the testator is (usually) not a lawyer, they did not realize that those funds are only protected if they are in certain kinds of trusts. Further, the Trustee may not have realized this either, further compounding the problem. We have had to go to court many times to ask the Judge to repair a Trust to conform to the testator’s original intent, a costly and time-consuming process.
If a person receives benefits under means-tested programs such as Supplemental Security Income (SSI), Medicaid, or the state Division of Developmental Disabilities (DDD) DC3_2013 (1), assets in a trust for them will likely be counted as “available” unless they are held in a highly restricted trust called a Supplemental Needs Trust, which is sometimes referred to as a Special Needs Trust (SNT). https://secure.ssa.gov/poms.nsf/lnx/0501120203 [In a previous post I discussed the difference between this and a first-party Special Needs Trust]. The SNT requires an array of specific restrictions. In general, if the assets are held in a general discretionary trust, the assets will be counted and the beneficiary can lose their benefits and be at risk for a State claim for repayment if they continued to receive benefits while the discretionary trust was in existence.
If you are the Trustee of a discretionary Trust — created, let’s say, under your parent’s Will – it would be a good idea to verify whether the Beneficiary is receiving benefits, as prompt legal steps might be needed to protect those benefits.
For advice on preparing, funding, and administering special needs trusts, call 732-382-6070