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Could a special needs trust help your loved one?

Creating your estate plan can be complicated, and if you have a disabled loved one, your plan can be even more complicated. One option you have available to you in New York is the special needs trust, also referred to as a supplemental needs trust. The special needs trust allows you to care for a disabled family member without jeopardizing the Medicaid benefits they rely on.

What is a special needs trust?

A special needs trust is a tool to provide assets to a person who is on Medicaid. The purpose is to provide for items and experiences not covered by government benefits, such as special equipment, transportation, or even a family vacation. The funds must go toward something that benefits the recipient directly.

The beneficiary has little to no control over this trust. The trustee must make all distributions directly to the vendor, and can never give cash to the beneficiary. The beneficiary cannot change or revoke the trust once established. New York recognizes three types of special needs trusts:

  • First party special needs trusts: The beneficiary’s own assets fund this type of trust. Medicaid recipients cannot own more than $2,000 in assets, so the trust is perfect if the beneficiary inherits money or receives money from a lawsuit that would put them over the asset limit. This trust is only available to beneficiaries under the age of 65 at the time the trust is established, and must be established by a family member. The trust must contain a provision that the trust repay Medicaid benefits upon the death of the beneficiary.
  • Pooled trusts: A pooled special needs trust is similar to a first party trust in that the funds come from the beneficiary. Nonprofit organizations administer the pooled trusts, however, and the beneficiary can open his or her own account. This option can benefit a person who has only a small amount of money or does not have a family member to establish the trust for them.
  • Third party special needs trusts: Family and friends can use their own funds to establish a third party special needs trust for the beneficiary. People who want to leave the beneficiary an inheritance, but don’t want to jeopardize the beneficiary’s government benefits, often choose this type of trust. Because the trust money came from an outside source, the trust can determine who receives any left-over funds from the trust after the beneficiary dies. The money does not have to repay Medicaid benefits.

Who should be the trustee?

Special needs trusts are more complicated than the average trust. If you are thinking of establishing a special needs trust for a loved one, give careful consideration to the trustee. The trustee should be someone who understands the beneficiary’s disability and needs, but can also be a conscientious caretaker of the trust funds.

A special needs trust can be a wonderful way to care for a disabled love one without risking their government benefits.


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