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Understanding how a special needs trust works in New York

Many New York families have members who have suffered disabling injuries or illnesses. These family members and their disability can place an insuperable burden on their families when the parents are no longer able to provide for the child’s care. Many federal and state programs provide benefits for such families, but these programs often have financial limitations on eligibility for benefits that prevent families from receiving those benefits. Over the last 20 years, the estate planning bar in cooperation with the Internal Revenue Service has devised a method for obtaining the benefits offered by Medicaid, Social Security Disability Benefits Insurance, and similar programs. The device is called a “special needs trust.”

The basics

A special needs trust (SNT) is a financial account used to “store” a disabled person’s assets so that the income and asset limitations set forth in the statute or IRS regulations will not disqualify the person from obtaining benefits. The account can be as simple as a bank account a sophisticated financial product. For example, a disabled person may have inherited a substantial sum of money from a relative. Such a sum might disqualify the recipient from receiving, say, Medicaid benefits. However, if the money is deposited in an SNT, the money will not be counted against the eligibility limits for Medicaid.

The money in an SNT must be spent for the beneficiary’s personal needs, such as shelter, clothing, and medical goods and services. Similar methods can be used to preserve eligibility for Supplement Security Income, SSDI benefits, and plans offered by the state of New York.

Different kinds of SNTs

SNTs come in several types. Pooled SNTs are used to place the assets of several beneficiaries in a single trust vehicle. As the trust assets generate income, portions of the income are paid to beneficiaries in accordance with their individual needs.

How to take advantage of an SNT

Anyone wishing to explore the potential benefits of an SNT should consult an experienced estate planning attorney. A knowledgeable lawyer can explain the mechanics of different SNTs, match a trust with the disabled person’s and the family’s needs, and draft a trust instrument that will satisfy the requirements of the state of New York and the federal government.

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