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Pennsylvania Courts Have Held That Third Party Established  “Supplemental Needs Trusts” Can Be An Effective Means Of Providing For The Supplemental Needs Of A Person With A Disability Without Jeopardizing His or Her Government Benefit Eligibility For Benefits Such As Medical Assistance.

Pennsylvania courts have held that “supplemental needs trusts” established by third parties can be an effective means of providing for the supplemental needs of a person with a disability without jeopardizing his government benefit eligibility for benefits such as Medical Assistance (i.e. Medicaid) , but only if those trusts meet certain standards. In sum, there appear to be certain critical factors that must be included in any third-party trust designed for the benefit of a person with a disability to protect it against being counted as an “available resource” and, thus, jeopardizing a beneficiary’s eligibility for government benefits . These factors include :

• A statement of the general purpose of the trust, including awareness of a particular beneficiary’s disabilities, knowledge of availability of government benefits, and of broad role/purpose of the trustees, including a clear statement of intent that the grantor intends the trust to use the trust principal and income to supplement, not supplant or replace government benefits. Include a strong spendthrift clause.

• Include more than one trust beneficiary and language that makes clear that the trustee should consider the needs of all beneficiaries of the trust in taking any actions. Include the trust settlor’s statement of intent to benefit takers of remainder (i.e. the beneficiary siblings of the disabled beneficiary).

• The trustee should have absolute discretion over the payment of
  income or principal to the beneficiary with a disability, with the right to accumulate income or principal. Where feasible, include the trustee’s right to sprinkle trust income or principal to the other beneficiaries of the trust. Include the right of the trustees to terminate and distribute the trust if ever deemed an “available resource” to the disabled beneficiary that would disqualify him from receiving government benefits (i.e. an “in terrorem clause “ ).

• Evidence that the beneficiary with a disability received government
  benefits before the creation of the trust.

See Snyder v. Commonwealth, Dep’t of Public Welfare, 598 A.2d 1283 (Pa. 1991) and Lang v. Commonwealth, Dep’t of Public Welfare, 528 A.2d 1335 (Pa. 1987),

See also Richard S. Scott, Esquire in Special Needs Trusts, PBI 2001-3020 and Timothy Powel, Esquire in Special Needs Trusts, PBI 2001-3020.