Bronx Special Needs Trust

Families with loved ones who have special needs are constantly concerned about ensuring that their special needs loved one will be able to enjoy a high quality of life. One way to ensure that your relative with special needs will have access to resources to help make sure that he or she has the products and services necessary to enjoy life is to create a special needs trust (SNT) for his or her benefit. A SNT, also known as a supplemental needs trust, is a trust established for the benefit of a person with a severe and chronic or persistent disability. NY EPTL § 7-1.12. To qualify as a SNT the trust must be set up with the clear intent that it is not to be used to supplant, impair or diminish, government benefits that the beneficiary is currently receiving or government benefits for which the beneficiary might otherwise qualify. The trust funds are typically used to improve the quality of the beneficiary’s life. Thus, in contrast with other types of trusts it is critical that a SNT be funded and administered in such a way that the beneficiary does not lose eligibility for government benefits. A Bronx Special Needs Trust Lawyer will educate you on the requirements of a SNT and make sure that your SNT is properly set up. A SNT may be but one estate planning that you will need to ensure the future needs of your loved one with special needs as well as the future needs of you and the rest of your family.

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Types of Special Needs Trusts

Care must be taken when setting up a special needs trust to ensure that it complies with federal and state law. It also must be set up properly to ensure that the beneficiary will maintain eligibility for needs-based governmental benefits such as Medicaid and Social Security Income despite the existence of the assets in the special needs trust. There are several types of special needs trusts including self-settled, third-party, and pooled. A special needs trust can be funded in a several different ways. For example, parents and other family members and friends can help fund a special needs trust by naming the trust as a beneficiary of life insurance, IRAs or retirement benefits. Many parents fund special needs trusts by simply making regular gifts to the trust over a number of years. If the beneficiary receives a court settlement, receives an inheritance or receives funds from some other source, then that money can be used to fund the special needs trust.

Third-Party Special Needs trust. A third-party SNT is one that is set up by someone other than the beneficiary with money not belonging to the beneficiary. It is the most common type of SNT. A third-party trust is popular because unlike a first-party trust, upon the death of the beneficiary the funds that remain in the trust do not have to be paid to Medicaid to cover the amount of Medicaid benefits the beneficiary received. Instead, the person who created the third-party SNT chooses the beneficiaries for the trust remainder.

A third-party SNT can be set up and funded through your will, through life insurance, through retirement benefits, or through some other type of beneficiary designation. However, for the trust to be a third-party SNT, the property cannot be left directly to the beneficiary and then transferred to the trust. The trust itself must be the beneficiary. For example, if the name of your special needs child is Sarah Jones, instead of putting "Sarah Jones" as the beneficiary of your life insurance policy, you would put the "Sarah Jones Special Needs Trust." In doing so Sarah's individual wealth will not increase, putting her at risk of losing government benefits.

Self-Settled Special Needs Trust. A self-settled SNT, also referred to as a first-party special needs trust, is funded using the assets of the beneficiary. For example, if someone left funds to the beneficiary in a will and the funds were then used to set up a SNT, that trust would be classified as a self-settled trust. The most common source of funds for self-settled SNTs is proceeds from a lawsuit. In some cases the lawsuit is over the injury that resulted in the disability, but not always. A disadvantage of a self-settled SNT and the feature that distinguishes it from a third-party trust is upon the death of the beneficiary any assets that remain in the trust must be used to repay to New York's Medicaid program the amount of funds paid by Medicaid to the beneficiary.

Pooled Special Needs Trust. A pooled SNT is similar to a self-settled special needs trust in that it is funded by the assets of the beneficiaries. However, it is different from a self-settled SNT in that a pooled special needs trust is created for the benefit of more than one beneficiary. Pooled trusts are generally established and managed by nonprofit organizations. The assets from more than one beneficiary are pooled together for administrative and investment purposes, but the nonprofit organization manages sub accounts for each beneficiary. In addition, even though the beneficiary's own funds may be used to establish the trust, at the beneficiary's death New York State does not require that the remaining funds be repaid for its Medicaid expenses on the deceased beneficiary's behalf as long as the funds are retained in the trust for the benefit of other disabled beneficiaries.

Selecting a Trustee

When establishing a special needs trust, you must designate a trustee. Typically, parents will serve as the trustees, with successors trustee named in the event of the death of the parents. Successors are often other family members or close friends. A corporate trustee can also be named. However, corporate trustees are expensive and only manage trusts with significant assets. The trustee is responsible for managing the trust assets, including investing the assets and determining what expenditures should be made from the trust assets. Care must be taken in selecting the trustee for a special needs trust. While it is important for the trustee to care about the beneficiary, it is also important that the trustee be fiscally responsible and understand the rules related to SSI and Medicaid.

  • Willingness and Ability to Serve. The trustee must be willing and able to serve as trustee. The job of a trustee can requires a significant amount of detailed work. While you may feel that someone would be honored to serve as trustee, it is possible that due to time constraints some may simply not be able or willing to serve. Thus, it is important to discuss the role before nominating someone as the trustee. You do not want to name someone who then refuses to serve.
  • Good Relationship with the Beneficiary. While the trustee does not necessarily need to have a close personal relationship with the beneficiary, it is a good idea to make sure the trustee has a good understanding of the beneficiary's condition, abilities and needs. The trustee also should have the patience and empathy to interact with the beneficiary in an appropriate manner.
  • Strong Financial Background. The trustee of a special needs trust should have a proven track record of financial competence. After all, the trustee will have sole responsibility for a significant sum of money that is critical to pay the expenses of a disabled person. Part of the job of the will also include filing returns, maintaining accurate financial records, issuing reports, and making wise investments.
  • Familiarity with Medicaid and SSI. While it is not necessary for the trustee to be familiar with the rules related to Medicaid and SSI, the trustee must be willing to learn those rules and get outside help with understanding the rules if necessary. If the trustee manages the trust in a manner that is inconsistent with the requirements of Medicaid and SSI, he or she may jeopardize both the eligibility of the beneficiary for governmental benefits and the financial status of the trust.
  • Co-Trustees. In some circumstances naming co-trustees may be a good idea. For example, naming a couple as co-trustees, or siblings as co-trustees will allow the duties to be shared by two people.
Eligible Expenses

Assets in a special needs trust are to be used to pay expenses that will improve or enrich the quality of life for the beneficiary. Examples of eligible expenses include:

  • Eyeglasses
  • Entertainment such as videos, games
  • Annual independent medical check-ups. If the beneficiary of the special needs trust receives Medicaid, then Medicaid will cover many of his or her medical costs. For medical care that is not covered by Medicare, trust funds can be used to pay for these expenses. Such costs may include doctor's visits, dental care, eye exams, and hearing exams.
  • Transportation, including vehicle purchased and title to the beneficiary
  • Maintenance of vehicles
  • Insurance including payment of premiums, but not homeowner's insurance
  • Rehabilitation
  • Essential dietary needs, but not standard, everyday groceries
  • Hobbies and recreational activities
  • Assistive technology such as computer or electronic equipment
  • Trips or vacations
  • Live entertainment such as movie tickets, sporting event ticks or concert tickets
  • Athletic equipment, training or competitions
  • Education such as vocational training and educational expenses such as tuition, books, supplies, computer and software, and training in their use.
  • Personal care attendant or escort, as well as a cleaning service
  • Pre-paid funeral and burial plan expenses. Pre-paid funeral expenses can be paid from the trust. However, money from the trust cannot be used to pay for funeral expenses once the beneficiary dies.

Care should be taken in using special needs trust fund assets to make purchase of everyday living items such as groceries, restaurant meals, mortgage or rent payments, homeowner's insurance, property taxes and utilities, since these are the types of expenses that SSI is intended to pay for. Paying such expenses from the trust may cause a reduction in SSI benefits. In addition, even if the funds are used for eligible expenses, the cash should not be given to the beneficiary from the trust fund. Instead, the vendor should be paid directly.

Beneficiaries of Special Need Trusts

While special needs trusts are often established by parents for children with disabilities, they can also be set up for the benefit of anyone who has a special need and requires resources for their long-term care including adults. For example, some spouses or children set up special needs trusts for a spouse or parent who has Alzheimer's disease, dementia, or other degenerative ailment or disability. In order to eligible to be a beneficiary of a SNT, the person:

  • Must have a severe and chronic disability such as a developmental disability, mental illness, or other physical or mental impairment
  • Must have a disability that must be expected to or give rise to a long-term need for specialized social or related services.
  • May need to rely on government benefits or assistance
Other Estate Planning Considerations

In additional to setting up a special needs trust for your loved one with a disability, there are other estate planning issues to consider to make sure that you do not inadvertently risk your loved one's eligibility for government benefits.

Beneficiary Designations. For beneficiaries who receive need-based government benefits, you must take care to make sure to minimize the amount of assets that they own. Make sure that if you or family and friends would like to leave that person money through a life insurance policy or on a retirement plan, that instead of naming your disabled loved one that instead the name loved one's trust is named as the entity designated to receive the funds. Otherwise, such a designation could cause your loved one to lose access to valuable government benefits.

Last Will and Testament. A will allows you to set forth how you would like your assets distributed after you pass away. Without a will your assets will be distributed to your heirs according to New York's laws of intestate succession. If you would like to leave assets to a loved one who has disabilities, then it is important to make sure that your estate does not fall into intestacy for 2 main reasons. First, because intestate succession will require that your estate be distributed to your statutory heirs in a specified order for priority, depending on how your disabled loved is related to you, he or she may not receive anything from your estate. Second, even if he or she does receive an inheritance, it will go directly to your disabled beneficiary. As a result, he or she may lose government benefits.

A special needs trust may be just one of several documents in your special needs estate plan strategy necessary to provide for your loved one who has special needs. For your SNT to be effective it is essential that it is designed according to legal requirements and that its trustee understands how it must be managed. To ensure that your SNT, will, and other estate planning documents are properly drafted and executed, it is important for you to have experienced representation. The staff at Stephen Bilkis and Associates will help you develop an overall estate plan that reflects your individual goals. Contact us at 1-800-NY-NY-LAW (1-800-696-9529) to schedule a free, no obligation consultation regarding your estate plan.

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