If you have a disabled child, grandchild or close family member and are concerned about their care after you pass away, there is a special kind of trust that you might want to consider.
Supplemental or special needs trusts (or “SNTs”) are specifically designed for this purpose. You can create a fund to help someone who suffers from a chronic or severe disability to ensure that the money you leave for them is well spent and used according to your wishes.
This type of trust is unique because it aims to provide long-term financial protection for disabled individuals without making them ineligible for government assistance. There is no restriction on how much money is put into the trust and there is no restriction on how much money can be spent on the disabled individual. In many cases, disabled individuals also qualify for government assistance.
SNTs are irrevocable trusts. This condition is necessary for the government to exclude the income in the trust when determining eligibility for other government programs and benefits.
The requirements for an SNT to be valid are the exact requirements for making a valid trust in the state of New York. In addition:
- The SNT must have specific provisions required by law.
- The provisions must comply with New York law to ensure the assets inside the trust are not counted for government benefits eligibility purposes.
- SNTs can usually supplement government benefits, such as Medicaid.
- Trustee(s) of the SNT has a fiduciary duty to use the funds for the benefit of the disabled person in a way that would supplement, and not supplant, the needs of the individual.
Who can create an SNT and for whom?
An SNT pays for the unique needs of the disabled individual. This trust creator is not required to be a family member or directly related to you. However, in most cases, it is typically the parent or grandparent of a disabled person who creates this type of trust.
New York law allows individuals to create this unique type of trust for another person or for themselves. If someone other than the disabled person is creating the trust, it is referred to as a “Third-Party SNT”. When creating a third-party SNT, any residual assets within the trust upon the disabled person’s passing do not need to be paid back to Medicaid. The trust’s creator can designate beneficiaries who will inherit the remaining assets when the disabled individual passes away.
A disabled person who owns assets can also create an SNT for their benefit. This type of trust is referred to as a “First-Party SNT”. However, in those cases, any funds left over after the disabled person dies are used to pay the government back for the public benefits received, often leaving little or nothing for the designated remainder beneficiaries.
Supplemental or special needs trusts serve a specific and essential purpose for individuals with chronic or severe disabilities. By planning ahead, these trusts i allow individuals to provide financial security to disabled individuals without sacrificing eligibility for government programs and benefits.