Future planning by families of individuals with disabilities should involve safeguarding access to public benefits while also providing for quality of life and personal dignity, and should be considered. Special Needs Trusts in New York State (SNT), also known as Supplemental Needs Trusts, serve this purpose, allowing the protection of assets and receipt of supplemental support without jeopardizing the eligibility criteria for programs like Medicaid or Supplemental Security Income (SSI). A Supplemental Needs Trust (SNT) can fulfill that goal and should be explored.

A SNT is a type of trust in which the property used to fund it does not count as income so that a person can be eligible for government benefits without exceeding the strict income requirements for receipt of such benefits.

SNTs are used for individuals with a disability who are receiving government benefits, the most common of which is SSI and/or Medicaid. For instance, SSI and Medicaid contain strict income requirements, in addition to SNAP and Section 8 Housing.

What SNTs and SSIs Can and Can’t Do

SSI in Medicaid differs from Medicare and SSDI. Medicare and SSDI have no asset limits since the benefits are based on work history and age. The trust is drafted in accordance with New York’s Estates, Powers and Trusts Law (EPTL) and applicable Medicaid/SSI rules to meet these goals and avoid pitfalls.

A SNT can be used to pay for extras and including expenses not covered by government benefits.

Medicaid, like SSI, have strict monthly income requirements and asset limitations. In addition, there are also different categories and types of Medicaid.

If SSI and Medicaid are being received, and the beneficiary receives income directly, if over these thresholds, this can result in the loss of their benefits

As a result, if an SNT is created, the trust must make such payments directly, and not to the beneficiary in order to avoid exceeding the income limitations with the possible loss of benefits.

Therefore, an SNT is not a type of trust in which distributions are made directly to the beneficiary because of the purpose of the trust and the fact that it is against the supplemental needs requirements.

Instead, a SNT contains a provision allowing a trustee of a SNT to accumulate distributions rather than distribute them directly to a beneficiary.

SNTs also cannot pay for anything that is otherwise covered by the government benefits.

SNT’s are confined to payment of costs and expenses that are not otherwise covered by the government benefits received. For instance, for an individual receiving government benefits who is beneficiary of the SNT, the SNT can pay the costs of transportation, housing (although some housing payments may reduce SSI and there are limitations), care management, recreation and therapies, education, travel, or assistive technology and other expenses not typically covered by Medicaid or SSI.

Different Types of SNTs

Another important consideration is that there are different types of SNTs depending upon the funding of the trust and who is funding the trust.

A third party SNT is funded by the beneficiary’s family. For a third party SNT, there is no asset limitation because the trust is funded with the family’s own assets, but the beneficiary must never own the assets that fund the trust.

Additionally, in a third party SNT, the trust may be created during the family member’s life who funded the trust or the trust can be a testamentary SNT, in other words, a trust created under a family member’s Last Will & Testament (Will). In a testamentary SNT, the trust comes into existence and is funded upon the death of the family member, who is the testator of the Will, and the SNT is for the benefit of the beneficiary.

A testamentary SNT is often created under the Will of a parent to a disabled child and often in the case of a spouse that is disabled so when one other spouse who was the testator of the Will passes, the predeceased spouse’s Will provides for the creation of the SNT and funding from the assets, which upon death, pour over and fund the SNT.

In a testamentary SNT, because there is a Will involved, probate of the Will is required, and the fact that the assets pour over from the Will to fund the SNT does not avoid probate of the Will.

It is often the case, if there is a deceased spouse with a pour over Will into a testamentary SNT, a guardian ad litem may be appointed for purposes of administering the trust.

The testamentary SNT avoids the possibility that property disposed of under the Will and inherited by the spouse or other loved one, could result in exceeding the financial limitations for the receipt of government benefits.

For a third party SNT there is no Medicaid payback at death. The family can decide how the remaining funds will be distributed after the beneficiary’s death.

A first party SNT is funded using the beneficiary’s own funds because the beneficiary has assets in the beneficiary’s own name already.

For a first party SNT, the beneficiary must be disabled under the Social Security rules, and be under the age of 65.

In a first party SNT, Medicaid requires payback at death, unlike the third party SNT.

In addition, for a first party SNT there is an annual accounting requirement and oversight so there are more administrative demands because the trust is funded with the beneficiary’s assets.

The third type of SNT, is a pooled trust which is run by nonprofits and often used for cases in which there is a limited amount of funds not requiring a trust or if there is no trustee that is available to administer the SNT trust.

In the case of a pooled trust, it may be a first party or third-party SNT.

As indicated by the reference to “pooled” the trust is a large group funded and using the pooled funds for investment but each individual has a separate subaccount.

The annual fees are not high. However, there is Medicaid payback at death and/or other arrangement by the non-profit dependent on the circumstances.

SNTs often are funded with the proceeds of savings and investment accounts, retirement accounts, life insurance, gifts and settlements in the case of court litigation involving medical malpractice which relates to the disabled person.

In the event of funding using retirement accounts such as IRAs and 401(k)s, the Secure Act must also be referred to.

Inherited retirement accounts, if used to fund a SNT, can qualify the recipient as an eligible beneficiary allowing payment over the beneficiary’s lifetime and avoid the payment restrictions of 10 years after the death of the account holder.

As a result of the Secure Act, and the rules related to avoiding payment directly to a beneficiary as part of the administration of the trust, trustees must carefully document the payment of expenses.

Individuals involved in estate planning that involves a person with a disability should consider an SNT. Parents of children with developmental disabilities, adults caring for siblings with chronic illnesses, or a settlement due to injury or accident can benefit from this planning tool.

Contact Us Today for Legal Guidance

At Tully Rinckey PLLC, our estate planning attorneys understand how deeply personal estate planning can be. If you have inquiries related to estate planning or supplemental needs trusts in New York state, our team of attorneys is available to assist you today. Please call 8885294543 to schedule a consultation or schedule a consultation online.

Carol A. Crossett is a Partner in the New York City office of Tully Rinckey PLLC and practice head of the Commercial Law Group and Trust & Estates. Carol brings a diverse background forged over many years having been involved in estate planning, preparation of wills, trusts, and other ancillary instruments and directives, handling contested and uncontested probate and administration proceedings, administrative accountings, will construction and other matters. Carol also has many years of experience involving representation for commercial transactions, and representing individuals and companies in commercial, corporate and civil litigation through all phases from inception to trial in both state and federal courts, and has also represented clients by pro hac vice admission, in state and federal courts outside New York.