Basics of Special Needs Trusts

Maintaining government eligibility for a disabled child or family member is extremely important for their long term care needs because such programs will often be the primary source for medical care throughout their life. A special needs trust is a way to supplement the needs of a child or loved one without risking program eligibility. Special needs trusts include self-settled trusts (grantor and beneficiary are the same person) and third-party trusts.


Establishing a Special Needs Trust

In many ways a special needs trust is established just like many other kinds of trusts. Special needs trust differ with respect to some specific provisions on the use and disposition of trust assets. Any special needs trust should clearly illustrate the purpose of establishing the special needs trust as providing supplemental benefits for the disabled beneficiary without compromising or reducing benefits received through government programs. The terms of the trust should also take into account the source of the trust assets. If a special needs trust is self-settled and funded with the beneficiary’s assets, the trust document must adequately address the requirements of New York and  federal law relating to the treatment of trust accounts and benefits under state plans. Special needs trusts that are settled and funded by parties other than the beneficiary need to provide for discretionary distributions of the trust assets for supplemental support so as to avoid being classified as assets available to the special needs beneficiary. Assets available to the special needs beneficiary will be counted as resources for means-testing for government benefit programs. Other important features of a special needs trust include requirements that the trustee:

  • is empowered to make distributions at their discretion;
  • should consider the settlor’s intention of establishing the trust as a source of supplemental resources, and not in lieu of government benefit programs;
  • is prohibited from making cash distributions to the special needs beneficiary, except as expressly provided by the trust document; and
  • should consider the effect that any distribution may have on eligibility.


Determining if a Special Needs Trust is Right For You

A qualified estate planning attorney can help you determine if a special needs trust makes sense for your estate plan. In determining if a special needs trust is the right tool for your situation, you will have to consider the applicable government program that the beneficiary will need, as some programs may not be means-tested and thereby reduce the need to restrict resources through a special needs trust. If you do decide a special needs trust is right for you, it is critical to have the appropriate provisions in the trust document to ensure that eligibility for needed public benefits is unaffected by the existence of the trust.

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