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Special Needs Trusts

We understand the concerns you may have when it comes to securing the financial future of your loved one with special needs. This blog provides an overview of Special Needs Trusts (SNTs) and their implications in New York State.

What is a Special Needs Trust (SNT)? A Special Needs Trust is a vital estate planning tool designed to provide for individuals with disabilities, chronic illnesses, or injuries who rely on government assistance. Its primary objective is to safeguard eligibility for essential benefits such as Medicaid and Supplemental Security Income (SSI), while supplementing these benefits with trust funds.  It ensures that your loved one’s government assistance remains intact.

Funds within a Special Needs Trust are typically allocated to supplement any expenses that government benefits do not cover. This can be anything from additional health care aides to recreational activities.

How Does a Special Needs Trust Function? Much like any other trust, a grantor establishes a Special Needs Trust and appoints a trustee responsible for managing its assets and overseeing their disbursement. The trustee bears the fiduciary duty of acting in the beneficiary’s best interest.

  • First-party (Self-funded) Special Needs Trusts enable disabled individuals (or their parents or grandparents) to place their own funds into the trust, including inheritances, life insurance proceeds, contest winnings, or personal injury settlements. These trusts typically hold assets belonging to the beneficiary before or contemporaneous with the trust’s creation.
    • The sole benefit rule applies, meaning that first-party SNT funds can be expended only and specifically on the beneficiary.
    • There is a Medicaid payback provision, meaning that the county must get paid back for expenses incurred upon the death of the beneficiary.
  • Third-party Special Needs Trusts are funded by third parties, such as relatives or close friends, and are usually funded by a will or trust upon their death.
    • No Medicaid Payback provision. The trust’s creator can name contingent beneficiaries when the disabled party dies.
    • Less restrictive disbursement structure. No sole benefit rule.

Selecting the Right Trustee Choosing the right trustee is crucial for a Special Needs Trust. This role involves investment, distribution, reporting, and administration responsibilities, with a focus on benefiting the beneficiary. Some opt for co-trustees—a professional, a lawyer, and a family member—to ensure comprehensive care and compliance with the beneficiary’s evolving needs.

It is advisable to consult with an attorney to ensure full compliance with state and federal laws when creating a Special Needs Trust. If you are looking to learn more about Special Needs Trusts, you can reach out to me for a free consultation.

Be sure to visit our Events page to learn about our next Estate Planning Made Simple webinars.

This is not intended to be legal advice. You should contact an attorney to discuss your specific situation.

Michael Wagner is Partner concentrating on elder law and estate planning.  He can be reached by phone 845-764-9656 and by email.

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