Supplemental needs trust

Where the statute uses it: Minn. Stat. § 501C.1205, subd. 2

What it means

Minnesota’s version is defined by who put the money in, and paragraph (b) of subdivision 2 lists three sources that cannot.

For purposes of this subdivision, a "supplemental needs trust" is a trust created for the benefit of a person with a disability and funded by someone other than the trust beneficiary, the beneficiary's spouse, or anyone obligated to pay any sum for damages or any other purpose to or for the benefit of the trust beneficiary under the terms of a settlement agreement or judgment.

The third exclusion is a class of funders, not a person, and it is not confined to money paid as damages: anyone obligated to pay the beneficiary under a settlement or judgment is out, usually a defendant’s liability insurer. It is not a rule about settlement dollars as such. Money the beneficiary is owed is the beneficiary’s own money, which puts it under the federal first-party rules; a parent who settles her own claim arising from the same occurrence owes the beneficiary nothing and can fund the trust. The document also has to say a specific thing: under paragraph (d) the trust must contain provisions prohibiting disbursements that would replace, reduce or substitute for publicly funded benefits otherwise available, or render the beneficiary ineligible for them.

Subdivision 2 contains no payback. Nothing is repaid to the State, because the State never spent benefits on account of property the beneficiary owned.

It has its own age line, running the other way from the federal one. Under paragraph (e) a supplemental needs trust is not enforceable if the beneficiary becomes a patient or resident after age 64 in a state institution or nursing facility for six months or more and, due to a medical need for care in an institutional setting, there is no reasonable expectation of ever being discharged — with the beneficiary’s attending physician certifying whether the expectation is reasonable, and a beneficiary in a group residential program not treated as a resident of such a facility.

A trust holding the beneficiary’s own money is a different animal, governed by federal law. The 42 U.S.C. § 1396p(d)(4)(A) trust requires an individual under age 65 who is disabled, establishment by the individual, a parent, grandparent, legal guardian or a court, and a condition: the State receives all amounts remaining in the trust at death up to the total medical assistance paid on the individual’s behalf. Under age 65 closes that route on a birthday, and the payback is not a drafting choice — it is the term on which the exception exists.

Where the word shows up

In the clause relatives believe is protection. Section 501C.1205, subdivision 1(a), makes a trust provision that suspends, terminates, limits or diverts a beneficiary’s interest on applying for, being determined eligible for, or receiving public assistance unenforceable as against Minnesota’s public policy — without regard to the trust’s irrevocability or the purpose for which it was created, and except as allowed by subdivision 2 or 3.

Reporting is the other difference. Under subdivision 4 the trustee of a trust that is both a subdivision 3 trust and a (d)(4)(A) or (d)(4)(C) trust files the instrument and an inventory of the trust account assets with the commissioner of human services when the beneficiary requests medical assistance, then an accounting at least annually until the trust or the beneficiary’s interest in it terminates.