Key drafting provisions of a Third Party Supplemental Needs Trust
The purpose of this guide is to provide examples of types of provisions contained in a Third Party Supplemental Needs Trust that safeguard against commingling trust assets with assets owned by the beneficiary.
The Beneficiary must not have the right to revoke the TrustThe revocability of a trust is critical in determining whether it is a resource available to the SSI recipient (i.e. the Beneficiary). (POMS S.I. 01120.200.D.1.a). A trust is "revocable" if the grantor has the power or authority to revoke (i.e. reclaim or take back) the assets deposited in the trust. (POMS S.I. 01120.200.B.19). A trust is "irrevocable" if the grantor of a trust cannot revoke the assets deposited in the trust. If the recipient/beneficiary can revoke the trust, he or she can use its assets to pay for support and maintenance, thus making it an available resource. If that's the case, the beneficiary will be ineligible for means-tested public benefits under SSI, and the third-party trust will lose its asset-protection purpose. (POMS S.I. 01120.200.D.1.a). One example of protecting the beneficiary would be to expressly deny them any right to revoke the trust. Another example, is to include residual beneficiaries in the trust. If the trust names a residual (or contingent) beneficiary to receive the benefit of the trust interest, as in, generally, after the death of the primary beneficiary, the trust is irrevocable; in such circumstances, the primary beneficiary cannot unilaterally revoke the trust without the permission of the residual beneficiary.
The Beneficiary must not have the right to compel distributionsA Third Party Supplemental Needs Trust is a trust that contains assets of someone other than the Beneficiary. The key in this case is to look at the beneficiary's power within the trust and the discretionary authority of the trustee. If the beneficiary cannot revoke the trust, but a third party (grantor) can, than the SSA will continue to evaluate the trust based on the remaining criteria for that particular type of trust. (POMS S.I. 01120.200.D.1.b). One such assessment will be based on the beneficiary's control and legal right over trust property. For instance, a (discretionary) support trust, which can actually just be a provision in a trust or a trust, authorizes the trustee to invade trust assets in order to pay for support and maintenance for dependent beneficiaries. In essence, the trustee's power is circumscribed because the Trustee has no choice but to pay for beneficiary's support. If that's the case, the beneficiary has the power to compel the trustee to make such payments (in the event the trustee fails to act), thereby granting the beneficiary control and legal right over trust property, and making it a countable resource. A more practical approach is to exclude this support provision from the trust. Therefore, so long as the beneficiary cannot obtain the trust assets for him or herself, regardless of whether the trust is revocable or irrevocable, the trust does not count as a resource for SSI purposes.