The Qualifying Special Needs Trust
In Florida, one spouse generally may not disinherit the other. The surviving spouse is entitled to an elective share of thirty percent of the elective estate.[1] However, this rule becomes problematic when the surviving spouse receives Medicaid benefits. The recipient of Medicaid benefits is considered to have an ownership interest in anything the recipient becomes entitled to receive by inheritance.[2] Thus, the elective share could easily result in a loss of benefits for the surviving spouse.
One might think that the solution to this problem is simple: just advise the surviving spouse not to take the elective share. However, this action could be seen as a transfer of assets for less than fair market value because the spouse has the right to the elective share. And if the spouse makes a transfer for less than fair market value with the intent of preserving Medicaid benefits, the spouse will incur a lookback penalty.[3] Therefore, simply rejecting the elective share is not advisable.
Thus, the Florida legislature created the qualifying special needs trust (“QSNT”).[4] If a qualifying special needs trust is created—either before or after the decedent’s death—the surviving spouse’s elective share will be satisfied without that spouse losing Medicaid benefits. The requirements of a QSNT are:
the surviving spouse must be ill or disabled;
a court must approve of the trust (unless the “aggregate value of all property in all qualifying special needs trusts for the spouse is less than $100,000”);
the income and principal must be “distributable to or for the benefit of the spouse for life in the discretion of one or more trustees less than half of whom are ineligible family trustees. . . [including] the decedent's grandparents and any descendants of the decedent's grandparents who are not also descendants of the surviving spouse”;
and during the surviving spouse's life, no person other than the surviving spouse may have the power to distribute trust income or principal to anyone other than the surviving spouse.[5]
Despite the Florida Statute’s clear language that the QSNT may be created before or after death,[6] a trust created inter vivos by one spouse for the benefit of the other spouse is considered to be a first-party trust.[7] Thus, the assets in the inter vivos trust would be considered to be a countable asset unless the trust was a disability trust.[8] However, a trust established by the spouse “by will” is not a countable asset.[9] Thus, a QSNT ought to be created in the decedent’s last will and testament.
[1] Fla. Stat. § 732.2065.
[2] ESS Public Assistance Policy Manual § 1640.0305.04.
[3] 42 U.S.C. § 1396p(C)(1)(A); ESS Public Assistance Policy Manual § 1640.0608.
[4] The qualifying special needs trust is also referred to as a “supplemental needs trust” in Fla. Stat. § 732.2025(8). However, for the sake of clarity and simplicity, this paper will only use the term “qualifying special needs trust.”
[5] Fla. Stat. § 732.2025(8).
[6] Fla. Stat. § 732.2025(8) ([A QSNT] means a trust established for an ill or disabled surviving spouse with court approval before or after a decedent's death . . .”).
[7] 42 U.S.C. § 1396p(d)(2)(A)(ii).
[8] 42 U.S.C. § 1396p(d)(3)(B).
[9] 42 U.S.C. § 1396p(d)(2)(A)(ii).