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  • Nicole J. Zuvich

Understanding the benefits of a special needs trust

Updated: Sep 27

Providing for the living and health care expenses of a disabled person can be very challenging. The living and health care expenses of a disabled person can be nearly astronomical, and providing funds to meet those needs can be extremely difficult. Fortunately, both the state of New York and the federal government have a number of financial assistance plans that provide funds for both housing and health care. However, virtually all of these programs have income limits that determine eligibility; that is, individuals whose net assets and income exceed certain levels are not eligible for these assistance programs. In response to this conundrum, estate planning attorneys have devised a very helpful tool called the “special needs trust” (SNT) that shields a person’s assets and income, including money provided by others, from the calculations used to determine eligibility for programs such as Medicaid.

The basics

Like all trusts in New York, an SNT must be established by a written grant of trust powers to a person chosen by the creator (settlor) of the trust. The trust must be irrevocable, and the use of its assets must be restricted to providing clothing, food, shelter and healthcare to a person who meets the Social Security Administration’s definition of being disabled. The principal advantage of an SNT is that trust assets and income are not counted in determining whether the beneficiary is eligible for Medicaid. Thus, an SNT can provide financial aid for a trust beneficiary and thereby increase the person’s income.

Three kinds of SNTs

New York recognizes three kinds of SNTs: first party, third party, and pooled. A first party SNT is funded with the beneficiary’s assets. First party trusts are often used to hold funds recovered by the beneficiary in a personal injury lawsuit. Third party SNTs are established by someone other than the beneficiary, usually the beneficiary’s parents or a close relative. Pooled SNTs combine the trust assets of two or more disabled persons to permit the trustee to make more substantial investments and perhaps save money on volume purchases of permitted items.

Anyone interested in setting up an SNT should contact an experienced estate planning attorney for an evaluation of the proposed beneficiary’s financial situation and the suitability of an SNT to meet those needs.

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