What happens to any remaining funds in the trust when the beneficiary passes away? – North Carolina

Short Answer

Under North Carolina law, what happens to remaining funds in a supplemental needs trust after the beneficiary dies depends on how the trust is structured and funded. For many Medicaid-related supplemental needs or pooled trusts, the State must first be repaid for certain public benefits, and only what is left may pass to other named remainder beneficiaries. The trust document controls the ultimate destination of any balance, within the limits of North Carolina trust and Medicaid rules.

Understanding the Problem

The narrow issue here is: under North Carolina law, what happens to money left in a supplemental needs trust after the disabled beneficiary dies? In estate planning, this usually comes up when a family member wants to set aside funds to enhance a disabled loved one’s quality of life without disrupting needs-based benefits. The core concern is whether any unused balance must go back to the State to repay Medicaid, can pass to family or charities, or must stay in a pooled trust under statutory rules.

Apply the Law

North Carolina law treats the remainder of a supplemental needs trust differently depending on whether it is an individually drafted special needs trust, a Medicaid pooled trust subaccount, or a third-party discretionary trust. The trust agreement, combined with North Carolina’s Medicaid and trust statutes, dictates who gets paid first and who, if anyone, receives any leftover funds. Administration typically involves the trustee, the North Carolina Department of Health and Human Services, and, with pooled trusts, statutory accounting and payback steps.

Key Requirements

Trust type and funding source: Identify whether the supplemental needs trust is funded with the beneficiary’s own assets (first-party), someone else’s assets (third-party), or is a Medicaid pooled subaccount, because this drives whether a Medicaid “payback” applies.
Medicaid payback and statutory claims: For many first-party or pooled supplemental needs trusts, remaining funds must first satisfy authorized Medicaid reimbursement rights or other Department claims before any remainder can pass to others.
Remainder provisions and trust termination: After required claims are resolved and the trust is terminated, any leftover balance goes to the persons or charities named as remainder beneficiaries in the trust, or, if the document and statutes require, may stay with the pooled trust for limited purposes.

What the Statutes Say

N.C. Gen. Stat. § 36D-6 (Medicaid pooled trust surplus funds) – addresses how surplus funds in a Medicaid pooled trust subaccount are used to satisfy Department claims and what portion, if any, may be retained or distributed after payback.
N.C. Gen. Stat. § 36D-11 (Settlement; trustee limitations) – requires a final disbursement and accounting for a Medicaid pooled trust subaccount after the beneficiary’s death and provides for termination of the subaccount.
N.C. Gen. Stat. § 36D-12 (Administrative rules and Medicaid payback) – authorizes rules governing eligibility and confirms the State’s right to be paid from remaining pooled trust funds up to the total medical assistance paid.

Analysis

Apply the Rule to the Facts: In the scenario of a North Carolina resident considering a supplemental needs trust, the first decision is whether to use a stand-alone trust or a Medicaid pooled trust subaccount, and whether it will hold the disabled person’s own funds or only funds from others. If the trust will be a Medicaid pooled trust funded with the beneficiary’s assets, the statutes require that, when the beneficiary dies, the trustee settle the subaccount, satisfy any Medicaid claims up to the amount of assistance paid, and then handle any limited remainder under the trust and Chapter 36D. If instead the plan uses a third-party supplemental needs trust funded only with family assets and drafted to avoid Medicaid payback, the remainder provisions in that trust—often naming siblings, other relatives, or charities—govern where any leftover funds go after the beneficiary’s death, subject to general trust law.

Process & Timing

Who files: The trustee. Where: For Medicaid pooled trusts, the trustee must provide a final accounting and disbursement to the North Carolina Department of Health and Human Services, Division of Health Benefits, Third Party Recovery Section. What: A final disbursement and accounting for the individual subaccount, including documentation of charges and remaining balance. When: Within the timeframe set by statute and agency practice, which currently includes a 30-day period after receipt of Medicaid’s accounting for pooled subaccounts.
After resolving Medicaid or other Department claims, the trustee follows the trust document’s terms to distribute any permitted remainder to named beneficiaries or, for pooled trusts, to retain an allowed portion for administrative and indigent-beneficiary purposes under the statutory limits.
The trustee then formally terminates the trust or subaccount, documents the final distributions, and, if required, provides closing statements to interested parties or, in some cases, to the clerk of superior court or other supervising authority.

Exceptions & Pitfalls

First-party special needs trusts and Medicaid pooled trusts often require Medicaid payback; assuming all remaining funds can go directly to family may conflict with North Carolina’s statutory reimbursement rights.
Mixing the beneficiary’s own funds with third-party gifts in one trust can unintentionally trigger payback requirements or affect benefit eligibility; careful drafting and segregation of assets helps avoid this.
Failing to provide timely accountings or to follow the Department’s procedures can delay closure of the trust and may expose the trustee to claims or administrative complications.
Omitting clear remainder provisions in a third-party supplemental needs trust can lead to disputes or default rules that do not match the family’s goals.

Conclusion

In North Carolina, what happens to remaining funds in a supplemental needs trust at the beneficiary’s death turns on the type of trust, the source of its funding, and its written remainder terms. Medicaid pooled and other first-party supplemental needs trusts usually must first repay the State up to the value of certain benefits before any balance can pass under the trust’s remainder provisions. For a new plan, the key next step is to work with a North Carolina estate planning attorney to select the right trust structure and draft clear payback and remainder language.

Talk to a Estate Planning Attorney

If a family is planning a supplemental needs trust in North Carolina and wants to control what happens to any unused funds after the beneficiary’s death, our firm has experienced attorneys who can help explain options, Medicaid payback rules, and drafting choices. Call us today at 919-341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for any specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If there is a deadline, act promptly and speak with a licensed North Carolina attorney.