Q & A: 5 Frequently Asked Questions About Special Needs Trusts

Posted On October 13, 2023

Are you considering providing financial support to a loved one with special needs?

It’s common for individuals to name their loved ones as beneficiaries in a will, but this approach can unintentionally lead to financial turmoil. By doing so, you could inadvertently disqualify them from crucial government programs, causing them to lose vital financial and medical assistance.

In this post, we’ll walk you through the ins and outs of special needs trusts, answering the top five questions you may have. As you explore this option, it is important to note that a skilled New York special needs trust attorney can provide invaluable guidance and expertise.  At New York Legacy Lawyers, our team of Brooklyn special needs trust lawyers may be able to help ensure your loved one’s future is secure. Contact us today at (718) 713-8080 to schedule a consultation.

What is a Special Needs Trust

A Special Needs Trust (SNT), also referred to as a supplemental needs trust, is a specialized legal arrangement designed to support an individual with a severe, long-term disability. The trust serves as a reservoir of funds to cater for the unique, ongoing needs of the beneficiary, aiming to enhance their quality of life without compromising their eligibility for government assistance.

The SNT is typically established within wills, becoming effective upon the death of the donor. Its primary purpose is to provide financial support beyond what the government provides, without causing the beneficiary to exceed the asset limit set by government assistance programs such as Medicaid. Therefore, the funds in the SNT are used to supplement, not supplant, government benefits.

The creation of an SNT in New York follows the same requirements as any valid trust. However, it must also include specific provisions mandated by New York State law. If correctly drafted to align with these laws, the trust assets won’t be considered when the government determines eligibility for aid.

An SNT can be initiated by anyone for the benefit of any disabled person, regardless of their relationship. Commonly, parents of disabled children establish these trusts, but they could also be set up by grandparents, other relatives, or even a compassionate neighbor. To ensure the government doesn’t count the trust income when determining benefit eligibility, SNTs are irrevocably structured.

In cases where a disabled person with assets decides to create an SNT for their benefit, any remaining assets upon their death must be used to reimburse the government for any public benefits they received during their lifetime. This arrangement helps preserve the individual’s assets while also ensuring they receive the necessary support from both the trust and government benefits.

Things You Need to Know About Special Needs Trusts

Here’s how this type of trust can protect a beneficiary with disabilities.

1. What Are the Benefits?

These types of trusts give you an extra layer of protection, ensuring that the beneficiary can acquire and maintain the level of support they need. Unlike a will, they give you the ability to dictate the way your money is spent.

2. How Can a Beneficiary Access their Trust?

Giving a loved one with special needs money directly can complicate issues in a number of ways. However, doing it through a trust doesn’t mean that it’s difficult for them to access it.

If they choose, they’re able to use those funds for recreational use, as well as to pay for personal care, medical expenses, accommodation, education and transport.

3. What Should Be Included?

It’s important to go through your trust thoroughly to make sure it covers all the bases. In order to be legally watertight, it has to include specific language.

First of all, it needs to state that it’s intended to provide “supplemental and extra care” rather than basic support. This clarifies that it funds extra services that the government won’t provide to the trustee.

The trust should also explain that its an exception to the Omnibus Budget and Reconciliation Act, and include any provisions from the United States Code.

Finally, there should also be information regarding the Medicaid payback process.

4. How Do They Affect Government Assistance?

Inheritance of anything over $2,000 can cause a disabled person to lose government benefits. This means they’ll no longer have access to subsidized housing, Supplemental Security Income, or Medicaid.

A special needs trust allows you to leave them money without the risk of disrupting their current support. This is because they address the complicated needs of each individual, separating their funds from their income.

5. What Options Do I Have?

There are two main options you can choose from.

The first is a first-person trust, which makes the beneficiary completely liable in the instance of another legal settlement, such as inheritance or a compensation claim.

The second is a third-party trust, which gives parents or guardians more control over their funds. The money is used to secure the care and support their loved one needs, and anything outside of that can be allocated as they wish.

Topic Details
Benefits of special needs trusts Provides an extra layer of protection for beneficiaries with disabilities by allowing the trustee to dictate the way the money is spent.
Accessing the trust funds Beneficiaries can use the funds for recreational use, personal care, medical expenses, accommodation, education, and transport.
Necessary components of the trust The trust should state that it provides supplemental care rather than basic support, be an exception to the Omnibus Budget and Reconciliation Act, and include Medicaid payback information.
Impact on government assistance Inheritance over $2,000 can cause disabled individuals to lose government benefits, but special needs trusts allow them to receive funds without losing support.

How to Set Up Special Needs Trust

To establish a special needs trust, a trust document must be created that outlines how assets will be managed and distributed for the benefit of an individual with special needs. Although it’s possible to create a basic trust without legal assistance, many families choose to consult with a special needs trust attorney who can help customize the trust to their specific needs.

A special needs trust attorney can provide assistance and advice throughout the process to ensure that the trust document is tailored to meet the beneficiary’s unique requirements. They can also help navigate any complicated legal or financial issues associated with the trust.

In the trust document, the individual creating the trust, known as the “grantor” or “settlor,” assigns assets to be managed by a “trustee.” Typically, the grantor will name themselves as the trustee and appoint a trusted individual as the successor trustee. The grantor will remain in this role until they die, become incapacitated, or resign, at which point the successor trustee takes over.

Both the grantor and successor trustee are legally bound to follow the terms set out in the trust document, ensuring that the assets are used for the benefit of the individual with special needs, who is referred to as the “beneficiary” within the document. With the assistance of a special needs trust attorney, families can establish a trust that effectively supports and protects the beneficiary’s interests.

Getting the Help of a Skilled New York Special Needs Trust Lawyer

Don’t leave your loved one’s financial security to chance. Seek the help of a skilled New York special needs trust lawyer who can help you navigate this complex process and create a trust tailored to your family’s unique needs. At New York Legacy Lawyers, our team of experienced New York special needs trust attorneys may be able to help ensure that your loved one receives the support and care they deserve for years to come. Contact us today at (718) 713-8080 to schedule a consultation.

New York special needs trust lawyer