Benjamin Katz, Esq. P.C.

When it comes to securing the future of a loved one with special needs, a supplemental needs trust (SNT) can be a powerful tool. A SNT is created for a person who is certified as disabled, and is less than 65 years old when the trust is created.  It may be used as a life planning tool by sheltering assets to:

• Maintain eligibility for governmental benefits like SSI and Medicaid, and
• Enhance the disabled person’s quality of life by paying for needs Medicaid does not cover.

In New York State, SNTs offer a range of benefits that go beyond financial security. By carefully planning and establishing a supplemental needs trust, families can ensure that their loved ones receive the necessary care, support, and resources without jeopardizing eligibility for vital government benefits.

According to New York State Estates, Powers and Trusts Law Section 7-1.12, the beneficiary of an SNT must be a person with “severe and chronic or persistent disabilities” which means a person “(i) with mental illness, developmental disability or other physical or mental impairment; (ii) whose disability is expected, or does, give rise to a long-term need for specialized health, mental health, developmental disabilities, social or other related services; and (iii) who may need to rely on government benefits or assistance.”

Many disabled individuals may take advantage of Supplemental Security Income (SSI) to receive monthly payments and Medicaid to receive free medical care.  To qualify for those programs, the disabled individual must demonstrate that their income and resources are below certain thresholds.  While income limits may differ from state to state, the resources threshold is generally $2,000.  That means if you have more than $2,000 in cash, bank accounts, stocks, bonds, real estate and personal property, you will not qualify.  However, a primary residence and a car are exempt.  If assets exceed the $2,000 limit, the disabled individual will have to spend down their assets until they fall below that threshold.  An alternative is to create a Supplemental Needs Trust and transfer the excess assets to the Trust.  When an SNT is funded by the assets of the disabled individual, it is referred to as a first-party SNT.  This may occur when a disabled individual inherits money or property or receives a court settlement.  However, it may also be useful when a person without a prior disability owning assets in his or her name, later becomes disabled, and thereafter needs to qualify for public benefits that have an income or asset limitation.

Supplemental needs trusts may also be established by persons planning in advance for a loved one with special needs (e.g. parents, grandparents, spouses, siblings, etc.) using their money and assets rather than their loved one’s.  These are referred to as third-party SNTs.

Regardless of where the assets come from, the steps necessary to establish a SNT is the same.  A Trust Agreement is drafted naming the disabled individual as the Beneficiary of the Trust and describing the duties of the person who will be administering and managing the assets of the Trust (the “Trustee”).  The Trustee must keep detailed records of all transactions and will be required to provide annual reports to social service agencies.

One the SNT is funded with either first-party or third-party assets, the assets may be used to supplement, but not replace, the benefits the Beneficiary receives through SSI and Medicaid.  That means, SNT funds may not be used for clothing, food or shelter since that is what SSI is intended to pay for.  Similarly, the funds will not be used for medical treatment or equipment covered by Medicaid.  The funds may be used for most other expenses including:

• Activities and Entertainment
• Books, newspapers, and magazines
• Electronics, computers, and software
• TV, internet, and phone
• Education or training
• Insurance, subject to certain limitations
• Therapies and care management
• Medical equipment or services not covered by Medicaid
• Professional services
• Travel costs
• Vehicle and maintenance or operation costs
• Household and personal items
• Taxes

At all times, it is important to keep the SSI payment separate from the SNT funds.  It is also important to ensure no SNT funds are given directly to the Beneficiary.  Rather, all payments by the SNT should be made in the name of the SNT directly to the providers of good and services.  Any violation of these rules could render the SNT invalid and cause the disabled individual to lose their benefits.

These rules can be complicated, so it is best to speak with an experienced attorney to discuss creating and managing an SNT before making any payments to anyone. Under most circumstances, the fees for doing so can be paid for by the SNT, and the advice you receive may save you a lot of headaches.