As a New York parent of a child with special needs, you may need to take extra time and care when making an estate plan so that you do not jeopardize your son or daughter’s eligibility for government benefits. Many parents of children with disabilities create special needs trusts for exactly this purpose.
Per the Special Needs Alliance, a special needs trust gives you an avenue through which you may leave assets for your child while allowing him or her to maintain eligibility for means-based benefits. Means-based benefits include Medicaid and Supplemental Security Income, among others. Special needs trusts come in two distinct formats: first-party special needs trusts and third-party special needs trusts.
The first-party special needs trust
Most parents looking to set aside assets for a child with special needs create third-party special needs trusts. However, if your child inherits a lot of money or property or receives a sizable settlement, you may want to consider a first-party special needs trust.
There is a known drawback associated with this type of trust. Rather than transfer any money remaining inside after the death of the beneficiary to someone else, remaining funds in a first-party trust must go toward Medicaid reimbursement.
The third-party special needs trust
When you create a third-party special needs trust, you fund it using assets that do not belong to the beneficiary. You also have to appoint a trustee to oversee its distributions. A big advantage associated with a third-party special needs trust is that the money inside may go to a different beneficiary once the original beneficiary dies, rather than going toward Medicaid reimbursement.
Consider, too, that there may be tax implications that come with establishing either type of special needs trust.
