Minnesota Supplemental and Special Needs Trusts

If you have a loved one who lives with a disability, you may be concerned about how they will be financially supported when you pass away. The state of Minnesota provides public assistance to individuals who meet certain qualifications. Qualifying is partially based on assets and income, which means individuals typically must spend down their assets before they can qualify. Although public assistance will likely pay for most of your loved one’s basic living expenses, the cash benefits are marginal, which means they may not have the means to enjoy certain activities and experiences they once enjoyed.

Minnesota law provides two trust options that allow a person with a disability to maintain a higher standard of living while also maintaining eligibility for public assistance.

Special Needs Trust

Special needs trusts are funded with the assets of the individual with the disability, and established for the individual’s own benefit. As long as the trust, rather than the individual, is the holder of the assets, the trust may hold an unlimited amount of assets without the assets being considered for Medical Assistance eligibility purposes. The purpose is to enhance the quality of life of individuals with disabilities by allowing them put assets into the trust that they can later use for recreational activities, more sophisticated medical treatment, vacations, home furnishings, education and other services and experiences not covered by public assistance.

Upon the death of the beneficiary, the trust assets are used to reimburse the government for the cost of any public assistance used by the beneficiary. If assets remain after the reimbursement, the remaining assets are distributed as designated by the settlor (the individual who created the trust).

Supplemental Needs Trust

Supplemental needs trusts are established and funded by someone other than the individual with the disability or the individual’s spouse, such as a parent, grandparent or sibling. The general purpose of a supplemental needs trust is the same as the special needs trusts: to provide funds to supplement the basic living expenses covered by public assistant programs.

Upon the death of the beneficiary, the remaining assets of a supplemental needs trust will be distributed according to the designation by the person who created the trust. For this reason, a supplemental needs trust is the preferred choice for family members looking to provide for a loved one with a disability: once your loved one passes away, assets remaining in the trust are not subject to recovery by the state, but rather pass to the individual(s) chosen by you.

Supplemental needs trusts provide a flexible option for supporting a loved one, but require advance planning: if you pass away without such prior planning, assets intended for your loved one will be distributed outright, which will cause the individual to lose public assistance eligibility until the assets are spent down or transferred into a special needs trust.

If you are interested in learning whether a supplemental needs trust or a special needs trust is right for you, please contact a member of our wealth transfer firm for more information.