Supplemental Needs Trusts in Massachusetts and New Hampshire: Protecting Your Loved One's Future

When planning for the future of a loved one with disabilities, one of the most important questions families face is: How can I leave an inheritance to someone I love without jeopardizing the government benefits they depend on?

For many Massachusetts and New Hampshire families, the answer may be a Supplemental Needs Trust, sometimes called a Special Needs Trust.

A properly designed Supplemental Needs Trust can help provide financial support, improve a beneficiary's quality of life, and preserve eligibility for important means-tested government benefits, including Supplemental Security Income (SSI) and MassHealth (Medicaid).

At Legacy Gurus, we believe estate planning is about more than protecting assets. It's about protecting people, preserving dignity, and creating a thoughtful plan for the future.

What Is a Supplemental Needs Trust?

A Supplemental Needs Trust (SNT) is a specialized legal trust designed to hold and manage assets for the benefit of an individual with disabilities.

Unlike an outright inheritance, which may be counted as an available resource when determining eligibility for certain government benefits, assets held in a properly structured Supplemental Needs Trust generally are not treated as resources available to the beneficiary for SSI and many Medicaid eligibility purposes.

The trust is managed by a Trustee, who is responsible for administering the assets and making distributions consistent with the trust's terms and applicable benefit rules.

The goal is to provide additional financial resources that can enhance the beneficiary's quality of life without unnecessarily interfering with essential government assistance.

Why Might Someone Need a Supplemental Needs Trust?

Imagine a parent who wants to leave $200,000 to an adult child with disabilities.

The child receives SSI and MassHealth benefits that help cover basic living expenses and medical care.

If the parent leaves the $200,000 directly to the child, the inheritance could cause the child to exceed the financial eligibility limits for those programs.

This could result in a reduction or suspension of benefits until eligibility is restored.

However, if the parent establishes and properly funds a third-party Supplemental Needs Trust, the inheritance can generally be held and administered for the child's benefit without being counted as the child's personal financial resource.

This allows the family to provide additional financial support while helping preserve access to essential benefits.

What Can a Supplemental Needs Trust Pay For?

A Supplemental Needs Trust can provide financial assistance for a wide range of expenses intended to improve the beneficiary's comfort, independence, and quality of life.

Depending on the trust's terms and the beneficiary's circumstances, permissible expenditures may include:

• Educational programs, tutoring, and vocational training
• Travel, vacations, and recreational activities
• Computers, phones, and other technology
• Transportation and vehicle-related expenses
• Personal care and support services
• Medical, dental, and therapeutic expenses not otherwise covered
• Furniture, clothing, and personal belongings
• Hobbies, entertainment, and social activities
• Accessibility improvements and specialized equipment

An important consideration: Not all trust distributions are treated equally under government benefit rules.

For example, payments for shelter expenses may reduce SSI benefits in certain circumstances, even when the trust itself is properly established. Cash distributions directly to the beneficiary may also affect eligibility.

A knowledgeable Trustee should understand these rules before making distributions.

Third-Party vs. First-Party Supplemental Needs Trusts

There are two primary categories of Supplemental Needs Trusts, and understanding the difference is essential.

Third-Party Supplemental Needs Trust

A third-party Supplemental Needs Trust is funded with assets belonging to someone other than the beneficiary.

For example, parents or grandparents may establish a trust to receive an inheritance, life insurance proceeds, or other gifts intended for a loved one with disabilities.

One significant advantage is that a properly structured third-party Supplemental Needs Trust generally does not require the remaining trust assets to reimburse Medicaid after the beneficiary's death.

Instead, the person creating the trust can designate who receives any remaining assets.

For families engaging in estate planning, this is often the preferred structure.

First-Party Supplemental Needs Trust

A first-party Supplemental Needs Trust is funded with assets that already belong to the individual with disabilities.

For example, a beneficiary may receive a personal injury settlement or inheritance directly and subsequently need specialized planning to preserve eligibility for government benefits.

These trusts are subject to additional federal and state requirements, including Medicaid payback provisions for qualifying trusts established under federal law.

Because the requirements differ significantly, it is important to determine which type of trust is appropriate before transferring assets.

Can a Supplemental Needs Trust Be Included in a Revocable Living Trust?

Yes. A Supplemental Needs Trust can often be incorporated into a parent's or another family member's revocable living trust.

For example, a parent may establish a revocable living trust that provides for multiple children.

Upon the parent's death, the trust might direct that one child's inheritance be distributed outright, while another child's inheritance remains in a separate Supplemental Needs Trust.

This approach allows the parent to create a coordinated estate plan that accounts for each child's individual needs.

It can also provide flexibility in naming successor Trustees, determining how assets should be managed, and identifying who will receive any remaining trust property after the beneficiary's death.

Who Should Serve as Trustee of a Supplemental Needs Trust?

Choosing the right Trustee is one of the most important decisions when establishing a Supplemental Needs Trust.

The Trustee is responsible for managing trust assets, maintaining appropriate records, making distributions, and understanding how those distributions may affect the beneficiary's government benefits.

Families may consider appointing:

• A trusted family member
• A professional fiduciary
• A corporate Trustee or trust company
• A qualified nonprofit organization offering trust administration services

The best choice depends on the beneficiary's needs, the complexity of the trust, the assets involved, and the proposed Trustee's ability to administer the trust responsibly.

In some circumstances, families may benefit from naming a professional Trustee while allowing a trusted family member to provide input regarding the beneficiary's personal needs and quality of life.

What Happens to a Supplemental Needs Trust When the Beneficiary Dies?

The answer depends on the type of trust established.

For a properly structured third-party Supplemental Needs Trust, the person creating the trust generally has the ability to determine who will receive the remaining assets after the beneficiary's death.

For example, the trust might provide that any remaining assets pass to the beneficiary's siblings, nieces and nephews, or other loved ones.

A qualifying first-party Supplemental Needs Trust, by contrast, is generally subject to Medicaid reimbursement requirements before remaining assets can pass to other beneficiaries.

Understanding this distinction is an important part of creating an estate plan that reflects your family's long-term goals.

Does Every Person With a Disability Need a Supplemental Needs Trust?

Not necessarily.

A Supplemental Needs Trust is particularly important when a beneficiary receives, or may eventually need, means-tested government assistance.

However, not every government benefit is based on financial resources.

For example, Social Security Disability Insurance (SSDI) is generally based on an individual's work history or qualifying family relationship rather than the same financial resource limitations applicable to SSI.

Similarly, Medicare eligibility generally does not depend on the beneficiary's assets in the same way that SSI and many MassHealth programs do.

A thoughtful estate plan should consider the beneficiary's current benefits, potential future eligibility, ability to manage financial resources, and long-term support needs.

Why Massachusetts Families Should Plan Ahead

Without appropriate planning, even a well-intentioned inheritance can create unexpected complications for a loved one receiving government assistance.

Establishing a Supplemental Needs Trust before an inheritance is received can provide greater flexibility and help families avoid unnecessary disruptions.

It also allows parents and other loved ones to make important decisions while they are able to do so, including selecting a Trustee, documenting their wishes, and identifying the resources that may be needed to support the beneficiary throughout their lifetime.

The goal is not simply to leave money behind. It is to create a meaningful plan for how that money can improve someone's life.

Protect Your Loved One With Thoughtful Estate Planning

At Legacy Gurus, we help Massachusetts families create estate plans designed around the people and relationships that matter most.

Whether you are planning for a child with disabilities, considering how to leave an inheritance to a loved one receiving government benefits, or reviewing an existing trust, understanding your options is an important first step.

A thoughtfully drafted Supplemental Needs Trust can help protect an inheritance, support a beneficiary's independence, and provide greater peace of mind for the entire family.

Ready to discuss your family's estate planning needs?

Contact Legacy Gurus to schedule a consultation and learn how a Supplemental Needs Trust may fit into your overall estate plan.

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*This article is provided for general educational purposes only and does not constitute legal advice. Supplemental Needs Trusts are subject to federal and state laws, and the treatment of trust assets and distributions depends on the trust's terms, funding source, beneficiary's circumstances, and applicable government benefit rules.*

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