and must prohibit any distributions for things that would otherwise be paid for by government assistance. The funds in the trust are to be used to pay for other basic needs and expenses on behalf of the disabled individual that would supplement or complement the benefits they are receiving. Supplemental needs trusts also allow the grantor to name an individual or corporate trustee of their choosing to guide and protect the disabled individual financially after they are gone. A supplemental needs trust also allows the grantor to designate a final beneficiary to receive any remaining funds in the trust after the disabled individual’s death. These trusts can be set up and funded while the grantor is living, or they can be created upon the grantors passing through their other estate planning documents. Other Things to Consider When you are ready to make the decision to create a supplemental needs trust for a loved one, it is advisable to find an attorney who specializes in estate planning and is familiar with Iowa’s laws regarding benefit eligibility. Special attention should be paid to the language of the trust and the grantor must be certain to strictly define terms and eliminate ambiguity in order to ensure the validity of the trust agreement. Some questions to consider when drafting the agreement: 1.) Do you want to specifically name any persons who should be consulted regarding the beneficiary’s
well-being? This often includes siblings, counselors, and aides. 2.) Who would be an appropriate trustee? Should the trustee be an individual or corporate trustee? 3.) Who will the ultimate beneficiaries be if there are still assets in the trust upon the passing of the original beneficiary? How is a Special Needs Trust different from a Supplemental Needs Trust? A special needs trust is also known as a first-party special needs trust. The third- party vs. first-party classifications are used to identify who is creating the trust for a disabled individual’s benefit. First- party special needs trusts are established with the disabled individual’s own assets and are often set up when a disabled individual receives an inheritance or other kind of pay out that will affect their benefits eligibility. The beneficiary may become ineligible for government benefits, and they must create the special needs trust, fund it with their outright inheritance, and then must re-apply for government benefits. Beyond the temporary lapse in benefits, another drawback of these trusts is that when the original beneficiary dies, the primary beneficiary of the trust must be the State of Iowa so they may recover any monies paid in benefits on behalf of the disabled individual. Special needs trusts are great tools to use if required, but typically, a supplemental needs trust is the preferred tool for families or individuals that want to leave assets to a disabled person.
If you have further questions, we invite you to schedule a meeting with one of our experienced Trust and Wealth Management Officers by calling 1-800-899-8858 or by email at Trust@HillsBank.com. We look forward to serving you as your trusted advisor.
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3rd Quarter 2024
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