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Understanding special needs trusts

On Behalf of | Aug 31, 2022 | Estate Planning

Many families in New York City and Brooklyn have one or more members who suffer from a severe disability that prevents these persons from working and, in some cases, attending to their basic needs. Special needs trusts (SNTs) were devised to allow these persons to inherit a sizeable estate without jeopardizing their eligibility for governmental financial assistance programs, such as Social Security Disability Insurance and Medicaid.

Different types of special needs trusts (SNTs)

Special needs are generally classified according to the identity of the person whose funds were used to fund the trust. A first-party SNT uses funds possessed by the disabled person. These funds in many cases were generated by damages for a severe personal injury. A third-party SNT is a trust established by a relative or friend of the disabled person, most commonly the parents of a disabled child.

What kind of trust is used to establish an SNT?

The basic unit of an SNT is a trust naming the disabled person as the sole beneficiary and nominating a trustee selected by the person establishing the trust or the beneficiary. The trust document must provide that the assets of the trust can only be used to pay for the beneficiary’s living expenses, such as health care, shelter, education. The trustee is legally required to ensure that trust assets are only spent on allowed uses. A trustee can be a friend or a relative, an attorney, or a corporate entity that specializes in providing trustee services.

The benefits of an SNT

Most government assistance programs have limits on the amount of assets that the applicant may own. An SNT permits the person creating the trust to provide additional funds to the beneficiary without jeopardizing the beneficiary’s eligibility for government benefits. New York law requires that an SNT trust document conform exactly to the state’s requirements for a valid SNT. If the trust document is properly drafted, the assets in the trust will not be counted in determining the beneficiary’s eligibility for programs such as SSDI benefits or Medicaid.

Creating an SNT

Anyone considering establishing an SNT should consult an experienced estate planning attorney to determine whether an SNT would be appropriate and also to draft the documents necessary to establish the SNT.