SPECIAL NEEDS PLANNING
Special Needs Trusts and Special Needs Planning
For years, our attorneys have been helping individuals and families engage in special needs planning so that assets are protected and available to benefit a beneficiary with special needs.
A common planning technique is to establish a supplemental needs trust. A supplemental needs trust is a special type of discretionary trust created for the benefit of a person with a “severe and chronic or persistent disability.” If the trust is properly created, the assets of the trust will not be considered available resources for Medicaid eligibility or other means-tested public benefits. The assets of the trust will only be used in the trustee's discretion to supplement, not supplant, the supplemental needs beneficiary’s care.
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There are two types of supplemental needs trust: First Party and Third Party.​
First Party Supplemental Needs Trust​
A first party supplemental needs trust is a discretionary trust that is funded with the assets of a supplemental needs beneficiary. The law provides that a first party supplemental needs trust can only be created by certain parties, which include the supplemental needs beneficiary, a parent, grandparent, guardian or if none of the foregoing parties exist, a Court.
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A properly drafted first party supplemental needs trust will provide that the local Department of Social Services will be repaid for any benefits correctly paid on behalf of the supplemental needs beneficiary upon that individual’s death. A first party trust is also referred to as a “Payback Trust”.
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Third Party Supplemental Needs Trust
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A third party supplemental needs trust is a discretionary trust created for a supplemental needs beneficiary with the assets someone other than the supplemental needs beneficiary or the spouse of the supplemental needs beneficiary. The protection afforded by a third party discretionary trust was first recognized in the seminal case Matter of Escher and then later codified in EPTL section 7-1.12.
Parents commonly create third party supplemental needs trusts for disabled children during their lifetimes. These trusts can be used to hold some of the parent’s assets, but a larger benefit is to allow other family members to name the trust as a beneficiary in their estate plans. By doing so, other family members can leave assets to disabled relatives and loved ones without jeopardizing their eligibility for means-tested public benefits. We often recommend incorporating a third party supplemental needs trust into your Last Will and Testament or living Trust, which supplemental needs trust only comes into existence if one of your beneficiaries is disabled at the time of your death. Often, beneficiaries becomes disabled after a client has prepared their estate plan. By incorporating such a trust, you are planning today for tomorrow’s unknown.
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Our attorneys will explain how these trusts will help provide a wide array of needs, from necessities to comforts and luxuries. Additionally, we will discuss how these trusts can be used in your particular situation. We will advise you on the Federal and State government benefits that are available to a disabled person such as Medicaid, Social Security Disability (SSD) and Supplemental Social Security Income (SSI) within New York.​