By: Anthony J. Enea, Esq.
Because of the increasingly common occurrence of a child or grandchild being diagnosed as autistic, in the autism spectrum, ADHD, bi-polar or suffering from a variety of other diagnosed physical and/or mental disabilities that are severe and chronic, the use of a Special Needs Trust (SNT) as a planning tool has become increasingly important and often necessary.
In simplest of terms, when a parent, grandparent or any family member or friend wishes to provide for the needs of a disabled person in either his or her Last Will and Testament or in a Trust within a Last Will or as a separate document, the vehicle that needs to be created is a third party SNT. Use of the third party SNT will allow the disabled person to continue receiving any federal or state aid and government benefits without said aid or benefits being impacted by the assets and/or income generated by the SNT. Additionally, because a third party SNT (unlike a self-settled SNT) is not funded with the assets of the disabled person, but, the assets of a third party (parents/grandparents or others), the law (Estates Powers & Trusts Law EPTL 7-1.12) provides that upon the death of the disabled trust beneficiary, the trust assets can be distributed to anyone provided for in the SNT without the necessity of the trust assets being utilized to pay back the state or federal government for the dollar value of the benefits provided to the disabled person. This rule does not apply to a trust funded with the assets of a disabled person, which must provide for the payback of the benefits paid.
The funds of a disabled person should never be used to fund a third party SNT. Additionally, the spouse of a disabled beneficiary or the parent of a minor disabled beneficiary cannot create and fund an inter-vivos (one created during their lifetime) SNT and get the protections provided by EPTL 7-1.12. This is because of their spousal and parental obligations of support. However, the spouse or parent can fund and create a testamentary trust (one created in their Last Will and Testament) or an inter-vivos SNT that is not funded until they are deceased.
A third party SNT can be testamentary, inter-vivos (created during life with the exceptions stated above), revocable and/or irrevocable. There is great flexibility in how the SNT can be drafted.
The funds and income generated by the third party SNT can be used on behalf of the disabled individual to supplement and not supplant government benefits such as Medicaid and SSI (Supplemental Social Security Income). In essence, the trust assets can be used to cover expenses that are not intended to be provided for by Medicaid and/or SSI. For example, they can be used to purchase a home for the beneficiary, provide for special therapies, wheelchairs, handicap accessible vans, recreational and cultural experiences (vacations, etc.). Payments made in the form of in-kind distributions for food or shelter will reduce SSI payments as they are considered unearned income. However, payments for goods and services other than food and shelter will not reduce SSI income.
There is no limit on the amount that can be used to fund the SNT. Additionally, in spite of the restrictions imposed by statute and SSI regulations, third party SNTs generally give the Trustee(s) the power to make distributions to meet even the basic needs of the beneficiary (food clothing, and shelter) even if it will diminish the receipt of government benefits.
When considering an SNT for a loved one, it is important that one thoroughly reviews the present and potential future needs of the disabled beneficiary. A thorough analysis by a qualified and experienced elder law attorney who is familiar with the array of federal and state benefits that may be available is advisable.