Special Needs Planning Frequently Asked Questions
In general, there are two kinds of supplemental needs trusts: a first party SNT and a third party SNT. Which type of trust is best suited for the situation depends upon the source of the funds going into the SNT. If the money of the disabled person is going into the SNT, as would be the case if the person had a sudden onset of disability, received a personal injury award, or received an inheritance or windfall, then the SNT would be a first party SNT. If the money going into the SNT was that of a person who did not have a responsibility to provide support to that person, as would be the case in which a grandparent or parent was leaving an inheritance to an adult, a third party SNT could be used.
In addition to the source of funds going into the SNT, there are other differences between a first party SNT and a third party SNTs. A SNT can be a stand-alone document (inter vivos, meaning created during lifetime) or a testamentary SNT created through a Last Will and Testament. First party SNTs have a payback requirement to the government, whereas third party SNTs do not have a repayment obligation.
This type of trust is designed to provide for benefits and life enhancement activities to the disabled loved one that are not provided by governmental assistance. The trust is drafted to ensure that the individual is not disqualified from governmental assistance because he or she has too many assets or too much income.
A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is a trust designed for beneficiaries who are either mentally or physically disabled and are eligible for government assistance (SSI, SSDI, Medicaid and other benefits).
New York State has a guardianship mechanism for a person with developmental disabilities under Article 17-A of the Surrogate’s Court Procedure Act. While the law in Article 17-A refers to persons with “mental retardation or developmental disabilities,” the Article 17-A guardianship process is used for any person with developmental disabilities that were diagnosed prior to the age of 22. Article 17-A guardianships are designed to be simplified court proceedings, and often the family can petition the Surrogate’s Court in the county in which they live. The process involves a Petition, usually completed by the parents of the developmentally disabled child, and two certifications from medical providers attesting to the child’s conditions. The purpose of the statute is to provide a more simplified guardianship process for families with developmentally disabled children. This guardianship is different from a guardianship that might be sought over a disabled adult, which is governed by Article 81 of the Mental Hygiene Law. While Article 17-A is currently being reviewed by various advocacy groups who are suggesting revisions, the attorneys at Burke & Casserly remain abreast of updates and developments in the law and can guide you if this is an area in which you need counsel.
Government benefits that have asset and/or income requirements are considered “means tested” benefits. There are a variety of means tested government benefit programs available, and each has different asset and/or income requirements. These means tested government programs offer services that may not be available to individuals who might otherwise be able to afford them. For example, supportive housing arrangements are often available only to persons receiving Medicaid, and no amount of money would enable a person to “buy” his or her way into such program. Therefore, means tested government benefits are often crucial to a disabled person’s ability to live independently. The receipt of an inheritance or “windfall” could result in the person being disqualified from benefits, either temporarily or for a lengthy period of time. There are steps that can be taken to minimize disruption in receipt of benefits. Ideally, prospective planning would prevent the disabled person from inheriting directly through the use of a Supplemental Needs Trust. However, even if a disabled person inherits, that person has options available to try to mitigate the interruption in means tested government benefits.
It is common for parents to desire to have a responsible child “hold” what would have otherwise been an inheritance for a disabled sibling. While the intentions are well placed, over the years there are many situations that may prove this strategy to be challenging. Some risks include (1) the other child might have, or in the future may have, creditor issues; (2) the other child might himself or herself become disabled or deceased; (3) the other child might himself or herself have personal challenges that renders him or her unable, unfit or unwilling to manage the disabled sibling’s share is significant; and (4) that the other child and the disabled child become estranged. These risks cannot be overlooked. Further, while every parent presumes that his or her children will forever be close, sometimes dynamics change. Oftentimes, the other sibling assumes a caretaking role for the disabled sibling, and financial management can be or should be delegated to a trustee of a special needs (supplemental needs) trust to ease the burden. There are times when this informal strategy works for a family, but the risks associated with this strategy often outweigh the benefits.
A pooled trust is special kind of SNT that is administered by a non-profit entity, which enables an individual to remain eligible for means-tested government benefits. It serves as an alternative to a first party SNT. The funds in a pooled trust are available to supplement the needs and services that a disabled person has while not disqualifying that person from government benefits. The advantage to the use of a pooled trust is that the non-profit agency “pools” all the participant’s funds into a single investment vehicle, even though each beneficiary has his or her own separate account. The funds in the beneficiary’s separate account can be asset (lump sum) or income (monthly income). There are a variety of pooled trusts operating in New York State, and we can discuss whether the use of a pooled trust is appropriate and assist you in selecting one and enrolling in one that meets your needs.