PLANNING FOR YOUR LOVED ONE WITH SPECIAL NEEDS

By Stella King, Esq.

If you have a child, grandchild, or other loved one with a severe and chronic mental or physical disability, it is more important than ever to plan for their future. While the government affords a plethora of benefits to individuals who meet certain criteria (e.g., Medicaid, SSI, SSD), these benefits can be basic and do not cover everything. The Special Needs Trust (a/k/a “Supplemental Needs Trust” or “SNT”) is a vehicle that will allow your disabled loved one to maintain their own funds and/or receive money from others without disqualifying them from government benefits they already (or may in the future) receive. There are three types of SNTs, two of which are discussed below.

A first-party SNT (or “self-settled” SNT) is an SNT into which a disabled individual (DI) who is under 65 years of age places their own money—for example, their savings account, inheritance, or settlement proceeds from a lawsuit. These assets are protected during the DI’s lifetime, but the SNT must contain a payback provision that states any remaining trust principal and accumulated income must be paid back to the government entity that afforded benefits to the DI, prior to their passing, as reimbursement for the amounts expended. A first-party SNT may be established by the DI, or by a parent, grandparent, guardian, or court, however, the DI must have proof of their disability (e.g., receipt of SSI or SSD).

A third-party SNT is an SNT that is funded with assets of someone other than the DI, such as the DI’s parents, grandparents, or other loved ones pursuant to Section 7-1.12 of New York’s Estates, Powers, and Trusts Law. Upon the DI’s death, the remaining funds within the SNT can be distributed to beneficiaries designated by the SNT’s creator. An “inter vivos” third-party SNT may be created and funded during lifetime of the third-party creator/donor by way of a standalone document for the DI’s benefit, or as a distribution within said third party’s own irrevocable or revocable trust, provided that the third party is not the DI’s spouse or the parent of a minor DI. Alternatively, a “testamentary” third-party SNT can be created by anyone (other than the DI) within such third party’s Last Will and Testament.

The assets of an SNT are meant to supplement, and not supplant, government benefits the DI is receiving, or may in the future receive, so they may be utilized for expenses the government does not cover—e.g., special therapies, wheelchairs, travel expenses, or the purchase of a home. As baby boomers age, the frequency with which their children and grandchildren are diagnosed with severe and chronic mental or physical disabilities is increasing. The SNT is an invaluable estate planning tool that can enhance a disabled loved one’s quality of life and ensure that they are taken care of long after you are gone.