Caring for a loved one with a disability may need to address planning for expenses that can extend into the future. Families may want to leave behind financial support without creating problems for the government benefits their loved one relies on.
In New York, a special needs trust offers a way to set aside money or property for a person with a disability. However, establishing one requires careful consideration of how the funds will be managed and used.
How does a Special Needs Trust work?
A special needs trust holds assets for the benefit of a person with a disability. A designated trustee manages the funds and makes distributions according to the trust’s terms and applicable laws. There are different types of special needs trusts in New York:
- First-party trusts: Funded using the beneficiary’s own assets, such as an inheritance or personal injury settlement. These require Medicaid reimbursement provisions.
- Third-party trusts: Established using assets belonging to someone else, often a parent or grandparent; usually do not need Medicaid reimbursement.
- Pooled trusts: Managed by nonprofit organizations that maintain separate accounts for beneficiaries while pooling funds for investment and management.
When properly established, the trust can help preserve eligibility for means-tested benefits such as Medicaid and Supplemental Security Income (SSI).
What can a special needs trust pay for?
A special needs trust can cover expenses that improve the beneficiary’s quality of life beyond what public assistance provides. Depending on the trust’s terms, these may include education, recreational activities, transportation and certain medical expenses.
However, distributions must be handled carefully. Direct cash payments or payments for food and shelter can affect SSI benefits. Families considering a special needs trust should also understand the trustee’s responsibilities, including recordkeeping and proper management of assets.
A New York legal team that handles estate planning can help families choose an appropriate trust structure and establish provisions that protect their loved one’s long-term financial interests.