Probate & Trust Law Section Conference Manual ... - Minnesota CLE

A SupplementalNeedsTrust can be either a testamentary or living trust. Best practice suggests
the establishment of a living trust, complete with a drafted and signed Trust Agreement, the
appointment of a Trustee, and the seeding of a small account owned by the Trust. The settlors
then designate the Trust as the recipient of the disabled individual’s share of their estate in any
testamentary planning they undertake. Using an inter vivosSupplementalNeedsTrust has the
following advantages:
SupplementalNeedsTrusts exist at the whim of the legislature. An existing Trust will be
grandfathered if there is a change in the law, while a testamentary Trust may not be
protected against changes in the statutes.
The beneficiary must be certified as disabled at the time the Trust is created. Using a
living Trust means that evidence of disability can clearly and easily be presented on a
date certain when the Trust is executed and funded. With a testamentary Trust, there
will be no way to know the beneficiary’s disability status at the time of the testator’s
death.
Using a living Trust provides others with an opportunity to contribute to the
beneficiary’s wellbeing without jeopardizing eligibility for public assistance programs.
Relatives and friends can give to the SupplementalNeedsTrust created by the parents
(for example) as lifetime gifts or in testamentary planning. A testamentary Trust is not
available to help with planning until the testator’s death.
The settlors of a living SupplementalNeedsTrust will have a way to gift funds for the
benefit of the beneficiary during their lives for tax planning, general support or to plan
for their own potential long term care needs. For example, if the settlors find
themselves in a position to need extensive long term care and the Medical Assistance
benefits that could help pay for that care, they could transfer to a Trust for the benefit
of a child with a disability (i.e. the inter vivosSupplementalNeedsTrust) and avoid the
imposition of a period of ineligibility for Medical Assistance. With a testamentary Trust,
the testators will not have a ready tool to shelter assets for the benefit of a child with a
disability.
A living SupplementalNeedsTrust will carry out any probate avoidance the family wants
to preserve while a testamentary Trust will necessitate the commencement of a probate
proceeding to establish the Trust imbedded in the Will.
A Supplemental Needs Trust which is imbedded in a standard revocable living trust
could be a good middle ground for these considerations. It would certainly be a trust in
existence to address concerns about law changes and disability certification, but it
would not provide a convenient repository for life time gifts from the settlors or others.
f. Established and Administered for the Sole Benefit of the beneficiary
A SpecialNeedsTrust must be drafted and administered for the sole benefit of the disabled
beneficiary. As a result, contemplated distributions must primarily, if not exclusively, provide a
Supplemental benefit to the disabled beneficiary. If the Trust is used to purchase a computer
the beneficiary uses, that purchase should meet the sole benefit requirement, even if someone
13 Supplemental & Special Needs Trust Basics | Jeffrey W. Schmidt