FAQ - Midwest Special Needs Trust

Special Needs Trusts

Frequently Asked Questions

Below you will find answers to some of our most frequently asked questions. For any questions that this page might not answer, please contact us.

What is a Special Needs Trust?

A special needs trust is a written legal document that allows for a person with a disability to have funds available to them for their supplemental needs without impacting eligibility for Supplemental Security Income (SSI), Medicaid, SNAP (Food Stamps) or HUD housing.

What are the federal requirements for how special needs trust funds can be used?

Federal and state regulations require special needs trusts be used for the benefit of the life beneficiary (person with a disability). This can include dental and medical services not covered by other insurances, co-pays, pharmacy, medical supplies, equipment, entertainment, cellphone, cable and other personal needs of the life beneficiary. As trustee, Midwest Special Needs Trust carefully reviews each request for funds to ensure compliance with regulations.

Supplemental needs of the life beneficiary do not include rent, mortgage, room and board, utilities, food or cash to the life beneficiary. Payment for these expenses from the trust may cause a reduction in the life beneficiary’s monthly benefit from Social Security.

What is the difference between a first-party and a third-party trust?

First-party special needs trusts, also called self-settled or Medicaid payback trusts, are funded with assets belonging to the person with a disability. These trusts are irrevocable and have a Medicaid payback requirement. Upon the death of the life beneficiary, a 25% contribution of the remainder balance is paid to the MSNT Charitable Trust if the trust was used before the Medicaid payback. After payment of allowable fees and expenses, the Medicaid lien is paid. After that, any remaining balance is paid to any named remainder beneficiaries.

Third-party special needs trusts are funded with assets or resources from someone other than the life beneficiary. These trusts can be created as revocable or irrevocable and do not have a Medicaid payback requirement. Upon the death of the life beneficiary, a 25% contribution of the remainder balance is paid to the MSNT Charitable Trust if the trust was used. After payment of allowable fees and expenses, the remaining balance is paid to any named remainder beneficiaries.

Why does the age of the person with a disability matter for first-party special needs trusts?

The enabling federal statute for pooled trusts does not have an age requirement; however, many state Medicaid programs have imposed a transfer penalty for individuals wanting to fund and open a pooled special needs trust over the age of 65.

For Missouri, Nebraska and Kansas residents, please call MSNT to discuss. There is no transfer penalty for Kentucky and Arkansas residents. There is a transfer penalty for Iowa, Tennessee and Oklahoma residents; please call MSNT to discuss available options. For Illinois residents, the person with a disability must have a guardian to open with a pooled trust organization.

What decisions must be made when setting up a trust?

Completing the documents requires consideration for the following:

Naming co-trustees and successor co-trustees who are authorized to make requests for funds and communicate on behalf of the life beneficiary. If no one is available, MSNT will provide this service as sole trustee;
Naming remainder beneficiaries who, at the death of the life beneficiary, will receive the remaining funds once all applicable fees, taxes and liens are paid; and
Electing investment authority and selecting an investment portfolio.

Why use Midwest Special Needs Trust instead of a bank?

Created by state statute in 1989 as a pooled trust organization
Governed by a board of trustees composed of professionals who have family members with a disability, are named by the Missouri governor and confirmed by the Missouri State Senate and comply with the Missouri Ethics Commission requirements
Affordable fees
Caring and knowledgeable staff who stay current with public benefit programs
Timely distribution process
Quarterly account statements
Convenient online True Link portal
True Link debit card loaded for eligible participants
Ongoing compliance through timely amendments to the trust documents
Assistance with Medicaid and Social Security eligibility reviews
Toll-free phone access for consultation or assistance
Nonprofit organization supporting the Charitable Trust Program serving individuals with disabilities with low incomes

What fees does MSNT charge for a special needs trust?

Please click here to view our fee schedule.

Does a special needs trust sub-account administered by Midwest Special Needs Trust (MSNT) protect an individual's eligibility for means-tested public benefits such as SSI and Medicaid?

Yes. In accordance with state statute (Chapter 402), Medicaid is required to exempt the trust assets for resource eligibility purposes, including all waiver services and SNAP benefits. Likewise, a properly executed special needs trust is exempt for eligibility testing for all state Medicaid programs. The Social Security Administration has approved MSNT as a nonprofit pooled trust organization and has approved MSNT Master Trust as a proper special needs trust. MSNT will not make distributions that impact eligibility for public benefits.

What types of funds may be used to fund a special needs trust?

MSNT accepts checks for initial deposit to fund a trust sub-account. Other assets in the form of stocks or bonds, money market funds and treasury bills must be converted to cash/check for deposit unless prior approval from the board has been received. Payments from insurance policies, annuities or settlements may be used. MSNT does not accept real or personal property as trust account assets.

What is the minimum amount required to open a trust with the Midwest Special Needs Trust?

An inactive trust may be funded with $200, including the $100 enrollment fee. Active trust sub-accounts may be funded with a minimum of $500 plus an enrollment fee. See comparison of active and inactive trusts.

May funds be added to the trust after the initial deposit?

Yes. Additional funds may be added at any time. Additional funds should be sent to MSNT for deposit to the sub-account.

How are individual trust account funds invested?

The assets are invested consistent with the directives elected in the investment section of the trust agreement. Several investment options are offered for donors who wish to designate what investments are utilized. Consistent with the purpose of the Midwest Special Needs Trust and the nature of the trusts administered by MSNT, the investment options are mutual fund portfolios with diverse holdings.

Can the assets in a trust sub-account be reclaimed?

Third-party revocable donors may reclaim part or all the assets in a trust sub-account.

For third-party irrevocable and first-party trust sub-accounts, the trust is irrevocable, and the assets in the sub-account cannot be reclaimed.

Is the income from the trust taxable?

Each type of trust — first-party, third-party irrevocable and third-party revocable — has its own pool for investment and management purposes. Within each pool, there are six different types of investment portfolios. Funds deposited for the life beneficiary are pooled together with like trust and portfolio type for investment and tax optimization. However, all earnings are individually accounted for. A life beneficiary’s portion of the pool is called a sub-account.

The first-party trust pool is a grantor trust. A grantor letter will reflect the income and deductions for calendar year. The life beneficiary will need to provide the grantor letter to their tax preparer to determine if there will be personal income tax consequences.

The third-party irrevocable trust pool is a non-grantor trust. A Schedule K-1 will reflect the income and deductions for the calendar year. The life beneficiary will need to provide this Schedule K-1 to their tax preparer to determine if there will be personal income tax consequences.

The third-party revocable pool is a grantor trust. A grantor letter will reflect the income and deductions for the calendar year. The donor will need to provide the grantor letter to their tax preparer to determine if there will be personal income tax consequences.

How does a life beneficiary request distributions from a trust sub-account?

All request for funds must be signed by the co-trustee if one has been named. If MSNT is sole trustee, the life beneficiary or responsible party can sign. MSNT reviews all request for funds and has the authority to approve or deny each request.

The following provides general guidelines and expense categories for trust use. It is not a comprehensive list or guarantee of payment.

Medical, dental and equipment not covered by benefits
Supplemental or support services not covered by benefits
Rehabilitation training and therapy not covered by benefits
Education including tuition, books and supplies
Irrevocable prepaid burial policies
Clothing
Non-food grocery items, such as personal care, cleaning and hobby supplies
Transportation expenses
Household goods and furnishings
Travel expenses
Home modifications for accessibility or equipment for home care
Phone, cable and internet services
Entertainment items and events
ABLE account

Will the donor and co-trustee receive regular statements on the financial performance of funds invested by the Midwest Special Needs Trust?

Yes. Sub-account statements are provided quarterly for each trust account. View the Sub-Account Statement User Guide.

Must a life beneficiary reside in the state of Missouri to participate in the Midwest Special Needs Trust?

No. The life beneficiary must be a resident of Missouri or one of states adjacent to Missouri. These states are Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska when the trust is created and funded. If they move, MSNT will continue to administer the trust and make distributions from the sub-account. MSNT will open third-party trusts for Iowa’s residents. A third-party donor may reside anywhere.

Will a life beneficiary's participation in the Midwest Special Needs Trust be affected if his/her state of residence changes?

No. MSNT will continue to administer trusts for life beneficiaries who move to another state after a trust is opened.

Does one need the services of an attorney to complete the trust agreement documents?

No. It is recommended, not required, that an attorney be consulted prior to completing the trust agreement documents and creating and funding a special needs trust.

Is a guardian necessary to open a special needs trust?

No. The co-trustee designated by the donor represents the interests of the life beneficiary. If a guardian has been appointed for the life beneficiary, the guardian may be required to sign the first-party trust agreement documents to open the trust.

When does MSNT serve as sole trustee?

MSNT serves as sole trustee:

for trusts without a designated co-trustee,
when the co-trustee resigns because they are no longer able or willing to serve.

What is the fee for MSNT to serve as sole trustee?

Please view our current fee schedule here.

How does the life beneficiary request funds from their trust when MSNT is sole trustee?

To request a distribution from the trust, the life beneficiary, service provider or their legal representative must complete and submit the MSNT Request for Funds form. The form is available on our website.

The life beneficiary or other responsible party assisting with the request for funds will sign and date the form, indicating the relationship to the life beneficiary. The Request for Funds form must be accompanied by supporting documents.

What if the life beneficiary needs assistance completing the Request for Funds form?

A guardian, friend, family member, case worker or caregiver may assist the life beneficiary by completing the Request for Funds form or contact MSNT for assistance.

How can a special needs trust be used?

Please see the Reference Guide for Co-Trustees and Life Beneficiaries for more information on allowable distributions and how to submit a request for funds.

Can a check be made payable to the life beneficiary for an allowable expense?

No. Checks cannot be made payable to the life beneficiary. Issuing checks payable to the life beneficiary may cause a loss or reduction in benefits. MSNT can make checks payable to vendors, agencies or medical providers or reimburse someone who has made the payment. Alternatively, the life beneficiary may be issued a True Link card that will allow for them to make necessary purchases in store and online with the use of a check. The life beneficiary should talk with their trust specialist if interested in this option.

What action does the life beneficiary take if a request is denied?

Please see the Reference Guide for Co-Trustees and Life Beneficiaries for more information on how to submit an appeal of a distribution denial.

Is the life beneficiary required to report the trust to Social Security or Medicaid?

Yes, the life beneficiary is required to report their special needs trust to all public benefit authorities. The life beneficiary should contact MSNT to request documentation for Social Security, Medicaid or other reviews.