How Do You Set Up a Special Needs Trust in New York?

What is a Special Needs Trust?

A special needs trust (SNT), sometimes called a supplemental needs trust, is a unique estate planning method designed to provide financial support to a loved one with qualifying, long-term disabilities. The trust acts as a pool of funds meant to assist with the beneficiary’s ongoing needs, with the intent of enhancing their quality of life without compromising their eligibility for certain government benefits.

Special needs trusts are usually written into last wills and become effective upon the donor’s death. The trust provides financial assistance beyond the support that government benefit programs may provide without causing the disabled beneficiary to exceed the threshold set for government assistance programs, such as Medicaid.

Many requirements for making any type of trust in New York also apply to special needs trusts. The construction and funding of the trust must comply with New York State law. Additionally, you must choose the right type of special needs trust for you and your needs.

Are Different Types of Special Needs Trusts Available in New York?

Special needs trusts provide beneficiaries with a private fund to pay additional costs and improve their quality of life while still allowing them to qualify for government benefits that address their healthcare needs. The trust funds may be used for medical procedures not covered through government assistance.

In New York, three primary types of special needs trusts are available.

A third-party special needs trust is set up by a donor (usually a parent, relative, or loved one) and funded by the donor’s personal property and valuables, usually as a provision of their complete estate plan. With a third-party trust, the beneficiary does not technically own the property in the trust or have direct access to the funds. Upon the beneficiary’s death, any remaining assets in the third-party trust will be passed to the donor’s other relatives or designated beneficiaries.

First-party trusts are created and funded by individuals with special needs or qualifying disabilities. For example, suppose the person with special needs has received a large inheritance, court settlement, divorce settlement, personal injury award, or other payment. In that case, they may be able to fund a special needs trust for their benefit, thus protecting their finances while still qualifying for government benefits.

A nonprofit association manages a pooled self-settled special needs trust. These trusts can be established to protect a beneficiary’s income or assets. In most cases, the people who participate in pooled special needs trusts are seniors over 65. The donors can deposit their income into the pooled trust. The money within the trust would then be separated into accounts for every named beneficiary. The nonprofit keeps any remaining assets at the time of the beneficiary’s death.

Who Can Create a Special Needs Trust and for Whom?

A special needs trust pays for the unique needs of a disabled individual. The trust creator is not required to be a family member or someone directly related to the disabled person. However, in most instances, an SNT is typically created by a parent or grandparent of someone with a disability.

New York law also allows individuals to create this unique trust for themselves. In cases of first-party SNTs, any funds left when the disabled person passes away are used to pay the government back for public benefits received, frequently leaving little for designated beneficiaries. With a third-party SNT, any remaining assets after the disabled person’s death do not need to be paid back to Medicaid or other government programs.

Some financial situations may prompt you to consider creating a special needs trust. These include when your loved one receives an inheritance, if your disabled child is the beneficiary of child support payments, if your family goes through a divorce, if your loved one is set to receive a personal injury settlement, or if you want to give your disabled family member a financial gift.

What Expenses Can Be Paid for with a Special Needs Trust?

Special needs trusts can pay for items and services, including the following:

•         Assisted living arrangements
•         Communication equipment
•         Educational pursuits
•         Hobbies, entertainment, and pastimes
•         Home accessibility improvements to assist a disabled person
•         Mobility equipment, including walkers and wheelchairs
•         Motor vehicles, including accessible vehicles meant to assist individuals with disabilities
•         Service animals, including seeing-eye dogs and therapy animals
•         Travel
•         Vocational training
•         And more

SNTs are not meant to provide for everyday needs. Your daily needs are intended to be covered by Medicaid and Supplemental Security Income (SSI). Using a special needs trust to pay for basic expenses such as utilities, mortgage payments, or food could threaten eligibility for government assistance.

What Are the Legal Requirements for Special Needs Trusts in NY?

For your SNT to be considered legally valid, it must meet certain criteria under state law. An experienced estate planning lawyer can assist you in ensuring that your special needs trust meets all the requirements for making a valid trust.

Additionally, your SNT must have the following:

•         Specific provisions required by New York law
•         The language of the document must comply with state law to ensure that trust assets are not counted for government benefits eligibility purposes
•         The trustees of the SNT have a fiduciary duty to use the trust for the benefit of the disabled person in a way that supplements, but does not supplant, the needs of the individual

You are encouraged to seek professional legal counsel to ensure that your supplemental or special needs trust meets the specific requirements required by law. Contact our New York law firm to schedule a free case review today.

How to Set Up a Special Needs Trust?

To establish a special needs trust in New York, a valid trust document must be created that outlines how assets will be managed and distributed for the benefit of the individual with special needs. While creating a basic trust without legal guidance is technically possible, any small error could render your trust invalid or threaten the beneficiaries’ eligibility for government benefits. Many families choose to work with trust attorneys who can assist them in customizing the trust documents for their specific estate planning goals.

A trust attorney will help you through the entire process to ensure that your estate plan documents are written to meet the unique requirements established by New York and the beneficiary’s needs. Your lawyer can also help contend with any complex legal or financial issues.

In the legal document, the individual who creates an SNT, known as the grantor or settlor, assigns trust assets to be managed by a trustee. The grantors often name themselves the trustee, but they can entrust this role to another party. The trustee (and any successor trustees) is legally bound to follow the terms established by the trust document.

Trust administration can be complicated. To ensure compliance with proper allocation of funds, seek the legal services of an experienced estate planning lawyer. Don’t hesitate to contact our law firm to schedule your free, no-obligation case evaluation today.

Schedule a Free Consultation with an Experienced Estate Planning Attorney Today

For legal guidance in creating special needs trusts and other estate planning documents, it is strongly recommended that you seek the legal representation of an experienced estate planning attorney. Contact our law firm to speak with our legal team today.

Call 845-668-4774 to schedule a free case consultation with attorney Derek Rolo and his legal staff.