Supplemental Needs Trusts: A Crucial Aspect of Medicaid

When a person with a disability depends on government benefits such as Medicaid or Supplemental Security Income (SSI), receiving an inheritance, personal injury settlement, or other financial gift can unexpectedly create serious problems. These assets, while well-intentioned, may push the person over Medicaid’s strict asset limits, resulting in a loss of vital medical coverage and support. Fortunately, a Supplemental Needs Trust (SNT)—also called a Special Needs Trust—can prevent this from happening.

At Shalloway & Shalloway, P.A., our West Palm Beach special needs planning attorneys help individuals and families use trusts strategically to protect eligibility for Medicaid and other public benefits. A properly structured Supplemental Needs Trust can ensure that a disabled person receives the care and financial security they need without jeopardizing the government assistance that makes daily life possible.

What Is a Supplemental Needs Trust?

A Supplemental Needs Trust is a special kind of trust designed to benefit a person with disabilities without disqualifying them from means-tested government benefits. Medicaid and SSI impose very low limits on how much money or property a person can own, typically around $2,000. If the person’s resources exceed that amount, their benefits can be suspended or terminated. That’s where an SNT comes in.

The assets in a Supplemental Needs Trust are not counted toward those limits as long as the trust meets certain federal and state requirements. Instead of the beneficiary owning the assets directly, the funds are held and managed by a trustee, who uses them to pay for the beneficiary’s needs that aren’t covered by Medicaid or SSI.

How a Supplemental Needs Trust Works

The key concept behind an SNT is that the trust “supplements but does not supplant” government benefits. In other words, Medicaid continues to pay for medical care, nursing home costs, and other essential health services, while the trust funds can be used to improve the beneficiary’s quality of life.

A trustee, who is often a family member, professional fiduciary, or corporate trustee, manages the funds and pays for goods or services that Medicaid doesn’t cover. For example, the trust might pay for:

 
• Dental care, vision care, or alternative medical treatments that are not covered by Medicaid

 

• Personal care attendants beyond Medicaid limits

 

• Transportation, including wheelchair-accessible vehicles

 

• Computers, phones, and other electronics

 

• Vacations, hobbies, and recreational activities

 

• Legal or financial services

Because the beneficiary does not have direct access to the funds, Medicaid treats the assets as being outside their control, allowing them to remain eligible for benefits.

Types of Supplemental Needs Trusts

There are two main types of Supplemental Needs Trusts, each designed for specific circumstances.

First-Party (Self-Settled) SNT

A first-party SNT is created with the beneficiary’s own assets, often from an inheritance, court settlement, or back payment of benefits. Federal law allows these trusts for individuals who are under age 65 and disabled. The trust must include a Medicaid payback provision, meaning that when the beneficiary passes away, any remaining funds must first be used to reimburse the state for Medicaid benefits paid on their behalf.

Third-Party SNT

A third-party SNT is funded with assets belonging to someone other than the beneficiary, such as a parent, grandparent, or sibling. These trusts are often established as part of an estate plan to provide for a disabled loved one after the family member passes away. Unlike first-party trusts, third-party SNTs do not require Medicaid payback upon the beneficiary’s death, allowing any remaining funds to go to other family members or designated heirs.

Why Supplemental Needs Trusts Are Essential to Medicaid Planning

Without a properly structured SNT, even a modest financial gift or settlement can disqualify someone from Medicaid. For individuals who rely on Medicaid for nursing home care, prescription coverage, or home health services, losing eligibility can be devastating.

Supplemental Needs Trusts serve several critical purposes in Medicaid planning:

 
• Preserving Eligibility – The trust shields assets from being counted toward Medicaid limits.

 

• Improving Quality of Life – The funds can be used for personal comfort, social participation, and other needs that Medicaid doesn’t cover.

 

• Protecting Family Assets – Especially in third-party trusts, families can ensure funds are used for the disabled person’s benefit without risking Medicaid disqualification.

 

• Providing Long-Term Financial Security – The trust allows for managed, sustained support over the beneficiary’s lifetime.

In short, a Supplemental Needs Trust gives peace of mind that a loved one will be cared for medically and financially even after parents or guardians are gone.

Creating a Supplemental Needs Trust

The creation of a Supplemental Needs Trust must follow specific federal and state requirements to be valid. Even a small drafting error can cause the trust to be counted as a resource, leading to a loss of benefits. That’s why it’s crucial to work with an attorney experienced in both Medicaid and estate planning law.

An elder law attorney can:

 
• Determine the appropriate type of trust for your situation

 

• Draft the trust to comply with Florida and federal Medicaid regulations

 

• Advise trustees on how to administer the trust correctly

 

• Coordinate the trust with other parts of your estate plan, such as wills and powers of attorney

Proper legal guidance ensures the trust serves its intended purpose: protecting your loved one’s care and benefits.

Protecting Your Loved One’s Future

Families often want to leave money or property to a disabled child, sibling, or other loved one, but doing so without the right planning can cause unintended harm. A Supplemental Needs Trust is one of the most powerful tools available to safeguard Medicaid eligibility while still providing meaningful financial support.

At Shalloway & Shalloway, P.A., we understand how important these decisions are. Our experienced West Palm Beach elder law attorneys help families establish trusts that comply with Medicaid rules, preserve benefits, and ensure loved ones are cared for with dignity and security.

If you have questions about setting up a Supplemental Needs Trust or how it fits into your Medicaid planning strategy, contact Shalloway & Shalloway, P.A. today for personalized guidance and compassionate legal support.