Many Maryland families caring for loved ones with disabilities can face something called a benefit cliff. If their loved one or family holds more than $2,000 in countable assets, they can lose critical Supplemental Security Income (SSI) and Medicaid coverage.
A supplemental needs trust (SNT) can offer a practical solution that helps enhance quality of life without sacrificing government assistance. This guide explains how first-party and third-party SNTs work to help families make an informed decision.
Support from the beneficiary’s own assets
A first-party SNT or a self-settled trust is a legal tool that helps a disabled person keep public benefits while using their own money. The beneficiary must fund the trust with assets they already own, including:
- Money from a personal injury case
- Past-due social security payments
- Unexpected inheritance
In most cases, the beneficiary must create the SNT and fund it before they turn 65. A key feature of these trusts is the payback rule. In Maryland, when the beneficiary dies, any remaining money must generally first repay the Maryland Department of Health for Medicaid medical assistance provided during their lifetime.
Aid from family members
Many Maryland residents opt for a third-party SNT, which is a trust established and funded by beneficiary’s family members, like their siblings or adult children. Funding can come from gifts, life insurance policies or as part of a last will and testament.
Unlike a first-party SNT, there is no requirement to reimburse the state with a third-party SNT. This advantage allows remaining funds to pass to other family members or charities after the beneficiary passes away. Moreover, the family can create this SNT at any time without rushing before the beneficiary reaches 65 years old.
Key differences at a glance
The primary distinction between these two trusts lies in whose money goes into it. A beneficiary funds a first-party SNT themselves while family members fund a third-party SNT.
Both SNTs still must follow the sole benefit rule, where the funds can only pay for extras that improve the beneficiary’s quality of life. This includes what government programs do not cover, including:
- Specialized therapy
- Travel
- New electronics
It is also important to note that in Maryland, first-party SNTs often face more rigorous reporting requirements and oversight from state agencies than third-party SNTs.
Helping secure future care and benefits
When planning an SNT, precise wording is vital. A single mistake in trust language can lead to a loss of benefits. A Maryland estate planning attorney can help families determine which SNT best fits their specific long-term goals.
