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Practice Area

Special Needs Planning

Key Takeaways

  • Planning and providing for the needs of a disabled loved one in your care can be tricky when they are receiving government benefits. Transferring assets to them directly could disqualify them from government income, so it may be in your, and their, best interests to consult with an NYC special needs planning attorney about how to best meet their needs after you’re gone.
  • A Special Needs Trust, or Supplemental Needs Trust, can help preserve a beneficiary’s eligibility for government benefits and provide for any additional needs they might have, such as the purchase of a home, home repairs, caregivers who are not covered by Medicaid/Medicare, and much more.
  • First Party Special Needs Trusts use the disabled person’s assets or income to protect their inheritance or any proceeds from a lawsuit awarded to them. The disabled individual can create such a trust on their own, though there are some drawbacks to doing so. Alternatively, Third Party Supplemental Needs Trusts use the assets of someone other than the disabled individual, who can dictate where the remaining assets will go upon the disabled individual’s death.
  • Special Needs Trusts may be created during a grantor’s lifetime (an intervivos trust) or upon the grantor’s death (a testamentary trust). Both offer different advantages.

Special Needs Planning

If you are currently providing care for a child or loved one with special needs, you have likely contemplated what will happen to them when you die. Special Needs Planning is critical to afford your disabled beneficiary the greatest independence and higher quality of life.

Although you can leave assets directly to disabled individuals‚ doing so is often detrimental. This is because disabled individuals often rely on essential benefits under the Supplemental Security Income (SSI) and Medicaid programs. An inheritance would disqualify them. These public monetary benefits provide only for the bare necessities such as food‚ housing and clothing. These limited benefits do not provide loved ones with resources to enjoy a richer quality of life.

Even when an inheritance is sizable, there are other reasons a disabled individual would want to keep government benefits. They may have extensive medical needs that would eat up the inheritance with little left over to enrich their life. Moreover, there are Medicaid Waiver Programs that are an integral part of a disabled person’s everyday life. The programs provide life skills training and social interaction. The waiver programs help people stay in their community and avoid institutional care.

To avoid disqualifying a disabled person from these needed benefits, consider placing assets in a “Supplemental Needs” or “Special Needs” Trust. When drafted correctly, this avoids disqualifying beneficiaries from receiving government benefits.

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Special Needs Trusts

Our estate planning lawyers can help you set up a Special Needs Trust, also called a Supplemental Needs Trust, to preserve a beneficiary’s government benefits. At the same time, the assets in the trust provide for any additional needs of the disabled person. The Special Needs Trust is designed to supplement‚ not replace public benefits.

The trustee of the Special Needs Trust cannot distribute funds directly to the disabled beneficiary. In-kind support and maintenance reduces the SSI benefit dollar-for-dollar up to a maximum of 1/3rd of the SSI benefit. Instead‚ the trustee disburses funds to third parties who provide goods and services to the disabled beneficiary.

What Can a Special Needs Trust Provide?

  • Purchase of a home
  • Home Repair
  • Caregivers not provided for by Medicaid/Medicare
  • Medication not covered by Medicare or Medicaid
  • Utilities
  • Insurance premiums
  • Income Tax
  • Transportation (including buy of a vehicle)
  • Supplemental education and tutoring
  • Materials and instruction for a hobby or recreational activity
  • Funds for trips or vacations
  • Funds for entertainment such as movies‚ shows or ballgames.
  • Goods and services that add pleasure and quality to life: e.g. computers‚ videos‚ and electronics, household goods.
  • Athletic training or competitions
  • Special dietary needs

How are Special Needs Trusts Structured?

There are two main types of Special Needs Trusts: First Party Trusts and Third-Party Trusts:

First Party Special Needs Trusts are funded with the assets or income of the disabled person. A First Party Trust is often used to safeguard benefits after a disabled individual receives an inheritance outright or is awarded proceeds from a lawsuit. The beneficiary must be under the age of sixty-five and established by a parent, guardian, or through the court. Thanks to recent legislation, the disabled individual also can create such a trust. The drawback of such a trust is that there must be a payback provision to Medicaid. The payback provision directs that any monies remaining in the trust at the time of the beneficiary’s death go to the state. Thus, the cost of the individual’s medical assistance is reimbursed from the trust.

In contrast, a Third Party Supplemental Needs Trust is funded with the assets of someone other than the disabled individual. Since the assets never belonged to the disabled individual, the grantor can direct who inherits the remaining assets on the disabled individual’s death. The remaining trust assets can go to other family members instead of the state. Grantors can create Third-Party Supplemental Needs Trusts during their lifetime in their Will or trust.

Intervivos Trust or Testamentary Trust?

Special Needs Trusts are either created during a grantor’s lifetime or upon the grantor’s death. A trust created during life is called a living or intervivos trust. A trust triggered upon death is a testamentary trust. Whether an intervivos or testamentary trust is the best choice depends on a family’s particular circumstances.

There are certain advantages to creating an intervivos trust, such as:

  • the avoidance of a probate proceeding that will delay the time a beneficiary will receive the inheritance.
  • other family members can make contributions, which makes administration more efficient.

As a loved one or caretaker to a disabled individual, you face unique challenges. A plan meeting the needs of a special needs individual does not have to be complicated. The key is to strategize ahead of time and seek the help of an attorney experienced in how inheritance affects government benefits.

Means-based government benefits are public benefits that are only available when certain strict income and asset guidelines are met. In NYS, this would be Medicaid and Supplemental Security Income (SSI). Neither Social Security Disability Insurance (SSDI) benefits nor Medicare are means-based so an SNT may not be needed for such disabled individuals.

What can or cannot be paid from a supplemental needs trust ultimately depends on what is considered countable income and assets for purposes of eligibility for the particular government benefit the disabled individual is receiving. The trustee may not make any direct payments to the disabled person and may not use the funds of the trust to pay for anything that the government benefits already provide. In practice, this most often means complying with Supplemental Security Income (SSI) guidelines. Any unearned income reduces the SSI benefit- dollar by dollar – by the amount of the income.

Therefore, all distributions from the trust have to be made to the provider of services, not outright to the disabled person. The disabled individual can have certain exempt assets in his or her name. These include, but are not limited to, a home, household furnishings, a car, term life insurance, a burial plot. The trustee of the supplemental needs trust may not give cash payments to the beneficiary, but can purchase goods or services with trust assets for the sole benefit of the SSI recipient. For example, the Supplemental Needs Trust can pay for summer camp, a computer, car service, clothing, a vacation or a van. This greatly improves the disabled person’s life without the loss of necessary government benefits.

Anyone but the disabled individual can be the trustee of a supplemental needs trust.