Supplemental Needs Trust Planning

First Party Supplemental Needs Trust

The Amendment to the Omnibus Budget Reconciliation Act of 1993 allows the person with disability to create the First Party Supplemental Needs Trust (OBRA Payback Trust) himself or herself.

In 1993, Congress passed a law as part of the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) allowing a person with a disability to transfer his or her solely owned assets to a first party supplemental needs trust (1st Party SNT); however, this trust had to be created not by the person with the disability, but by a parent, grandparent, court or guardian on behalf of the person with the disability.  See 42 U.S.C. Section 1396 p (d) (4) (A). The 1st Party SNT (also sometimes called an OBRA Payback Trust) is appropriate for a person with a disability who is under age 65, and but for her or his separate assets, would otherwise be eligible for needs based government benefits, such as Supplemental Security Income (SSI) and Medicaid.   Assets assigned to the 1st Party SNT will not be counted by SSI or Medicaid as available to the claimant; yet the assets held in the trust can be used to provide for those things for the benefit of the claimant that are not otherwise paid for by government benefits.

On December 13, 2016, President Obama signed into law the “21st Century Cures Act” (hereinafter referred as “the Act”).  Section 5007 of the Act, entitled “Fairness in Medicaid Supplemental Needs Trusts”, allows the person with a disability to establish the 1st Party SNT himself or herself, whereas before only a parent, grandparent, guardian or the court had authority to establish a 1st Party SNT.

The amendment resolves a gap that existed in the law for over twenty years. As of December 13, 2016, persons who are mentally capable will now be able to establish their own 1st party SNT.

Congress Passes ABLE Act

Congress Passes ABLE Act

Congress has passed the ABLE Act of 2014 (Achieving a Better Life Experience.)  Beginning in 2015, states may choose to develop savings plans akin to the popular 529 college savings plans.  The ABLE account may provide an efficient way for family members or friends to provide small gifts to benefit a loved one with a disability.  The ABLE account should not be considered a replacement for supplemental needs trust planning, but as an additional tool that may be appropriate under certain circumstances.

Importantly, the funds in the ABLE savings plan will not be countable when the beneficiary of the plan applies for needs based government benefits such as Medicaid and Supplemental Security Income (SSI).  However, if funds accumulate in the account in excess of $100,000, then the beneficiary’s eligibility for SSI will be impacted.

While the new savings plan look similar to 529 college savings plans, there are significant differences.   To be eligible, the beneficiary must have a disability that began prior to age 26. Funds in the account may be used for approved health care, education, housing, personal support and other care expenses.  Only one ABLE account can be set up for each eligible person.  Total annual contributions cannot exceed the federal annual gift tax exclusion ($14,000 for 2015), while each state can set limitations on total contributions from all donors.  (Illinois currently permits up to $350,000 to be contributed to the 529 college savings plans.)   Unlike 529 plans, contributions to the ABLE account are not tax-deductible; however, earnings in the account will not be subject to income tax.

Law Passed to Help Military Veterans Safeguard Survivor Benefits for their Children with Disabilities

Law Passed to Help Military Veterans Safeguard Survivor Benefits for their Children with Disabilities

As part of the National Defense Authorization Act (NDAA) of 2015, Congress will allow a supplemental needs trust (SNT) to be designated to receive military Survivor Benefit Pans on behalf of the Retiree’s child with a disability. Prior to this law, children of eligible Veterans who received needs based government benefits to pay for the costs of long term care or other services were subject to losing those valuable benefits since the VA required that any Survivor Benefit be paid directly to the child with the disability.  Under the new provision, the Survivor Benefit can be paid instead to a first party SNT which will now protect a child from losing important government benefits, while allowing the Survivor Benefit to be used for other goods and services, such as therapy not covered by the government, respite care, computers that can enhance the child’s well being.    A first party supplemental needs trust (SNT) is created for funds that belong to the person with the disability.  Upon his or her death, remaining trust assets must be used to repay Medicaid for services provided the individual during life.



On July 19, 2012, from 10am to 5pm at Navy Pier-Festival Hall A, Chicago, the Mayor’s Office for People with Disabilities will bring together more than 100 of Chicagoland’s disability related service providers, product merchandisers, assistive technology suppliers and recreational exhibits for a free exposition for people with disabilities, their families and friends.  To learn more, visit

Withdrawals from Qualified Plans for Those under Age 59 ½

Withdrawals from Qualified Plans for Those under Age 59 ½

Retirement plans often represent the largest asset an individual may own.   In these unsettling economic times, an individual may want to access this asset to pay bills or for other needs.   Typically, if an individual under age 59 ½ wants to withdraw monies from a qualified plan, the IRS will impose a 10 percent penalty.

There are a series of exceptions to the 10 percent penalty, but the exceptions can vary depending on whether the retirement plan is an IRA or 401(k) plan or other qualified plans.

The following rules for a penalty free withdrawal are the same whether the withdrawal is from an IRA or from a 401(k) plan, if the account owner: 

  1. Becomes totally disabled;
  2. Is required by court order to give money to a spouse as part of Divorce or legal separation (i.e. a QDRO);
  3. Has medical expense that exceed 7.5% of adjusted gross income;
  4. Is separated from service (through termination, permanent layoff, quitting or early retirement) in a year when the account owner turned 55 or later; or
  5. Subject to certain conditions, takes withdrawals in substantially equal amounts over owner’s life expectancy.

There are other means of penalty free withdrawals from IRAs, (but not 401(k)s): 

  1. To pay health insurance premiums during a period of unemployment lasting 12 consecutive weeks;
  2. To pay for tuition, room and board and books (net of scholarship) for spouse, child or grandchild;
  3. To pay up to $10,000 to purchase first home.

There are also hardship withdrawals from 401(k)s which would include costs  (subject to certain condition) related to purchase of principal residence not to exceed $10,000, payment of tuition, funeral expenses and the like.

Interestingly, an owner can take a loan from a 401(k) plan (but not from an IRA).  There are many conditions that must be met, but there are certain advantages; particularly, no credit checks, low interest rates, no financial hardship requisites, and interest paid on the account is paid to the account owner’s account, not to a bank or credit card company.  

Potential job loss poses the biggest disadvantage.  The loan must be immediately paid back (within 60 days) if account owner loses his or her job or changes employers.

For more information, refer to the IRS website, “Retirement Plans FAQs Regarding Hardship Distributions,”,,id=162416,00.html  and “Retirement Plans FAQs Regarding IRA Distributions,”,,id=111413,00.html.

Supplemental Needs Trusts Permissible Distributions

Supplemental Needs Trusts Permissible Distributions

Trustees administering a third party supplemental needs trust or a first party supplemental needs trust often seek guidance on permissible expenditures.  The answer begins with a question: What government benefits is the beneficiary receiving?  Under certain government programs, the beneficiary’s receipt of trust funds directly or via distributions to certain vendors can adversely affect the beneficiary’s eligibility for the government benefits.   Other government programs, such as Social Security Disability Insurance (SSDI),  are not related to assets or unearned income, but depend on the beneficiary’s ability to be substantially gainfully employed.   

The following is a non-exclusive list of permissible expenditures that should not adversely affect a beneficiary who is receiving Supplemental Security Income (SSI) and/or Medicaid.   While the following is meant to provide guidance, each SNT Trustee should consult with counsel regarding their proposed budget and plan for making distributions.


  • Transportation expenses, including vehicle purchase, modifications, tickets, gas, repairs, insurance, possibly the expenses of a driver, bus pass, public transportation passes
  • Home purchase (or down payment), and home improvements, including modifications for handicapped use (all to the extent not covered by government programs)
  • Home alarm and/or monitoring/response system
  • Security deposit on apartment
  • Landscaping/ snow removal/ lawn service
  • Storage units
  • Tickets to concerts or sporting events (for the beneficiary and an accompanying companion)
  • Care manager
  • Unreimbursed medical and dental expenses
  • Eyeglasses
  • Annual independent check-ups
  • Health, homeowner’s, automobile and life Insurance (including payment of premiums)
  • Rehabilitation
  • Elective surgery
  • Over the counter medications (including vitamins and herbs)
  • Pet and pet’s supplies, veterinary services
  • Acupuncture/Acupressure
  • Conferences
  • Courses or classes (academic or recreational) including supplies
  • Essential dietary needs, diapers
  • Dry cleaning and/or laundry services
  • Linens, towels
  • House cleaning/ maid service
  • Purchase of computer or electronic equipment, videos, internet service, cable service
  • Purchase appliances (i.e. microwave, stove, refrigerator, washer/dryer)
  • Repair services (appliance, bicycle, household, fitness equipment)
  • Pay for trips, camps, vacations, entertainment i.e. going to a movie, ballgame, concert, etc. (must avoid giving ticket to beneficiary who could then liquidate and convert to cash)
  • Athletic training or competitions, fitness equipment
  • Purchase clubs/ dues (book clubs, health clubs, Advocacy Groups, museums)
  • Personal care attendant, companion, or escort
  • Massage
  • Purchase furniture, television, wireless headsets, iPods
  • Federal and state taxes
  • Attorney’s fees, Trustee’s fees, accountant’s fees
  • Prepaid burial expenses
  • Personal effects: clothing, jewelry, educational or recreational items such as books, musical instruments and hobby materials, including lessons..
  • Non-food grocery items (laundry soap, bleach, fabric softener, deodorant, hand and body soap, personal/hygiene products, paper towels, napkins, toilet paper and household cleaning products)
  • Payment of debts
  • Respite for family members

Certain distribution from a Supplemental Needs Trust will result in a reduction in the monthly SSI payment:

  • mortgage payments, real property taxes, heating and cooling bills, electricity, water, sewage, garbage collection
  • Groceries and meals
  • Cash for any purpose (beyond the $20 SSI monthly allowance) 
Supporting Siblings of People with Disabilities: The Forgotten Family Members

Supporting Siblings of People with Disabilities: The Forgotten Family Members

Sponsored by Arc of Illinois In partnership with the Institute on Disability and Human Development at UIC and Supporting Illinois Brothers and Sisters (SIBS)

Date;  November 15, 2010

Time: 9:00 – 4:00

Location: College of DuPage
                   425 Fawall Blvd.
                   Glen Ellyn, IL 60137

For more information on this conference Click Here

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