Supplemental (or Special) Needs Trust
A parent may consider establishing a trust that can supplement and enrich a child’s life without affecting SSI and Medicaid eligibility. The intent of the Supplemental (or Special) Needs Trust (SNT) is to supplement governmental benefits. The Trust assets and income can be used for your child’s benefit without affecting their eligibility for government benefits. This trust can be set up while you are alive, or under your will (41).
There are two types of Supplemental Needs Trust. A First Party SNT is a trust funded with assets of the person with a disability, such as a settlement awarded from a personal injury or medical malpractice case. The SNT prevents the individual from losing government benefits, but it also provides that any monies left in the trust at the time of death shall first be used to repay the State for the benefits received during one’s lifetime. If there is a remaining balance after this repayment, it may be distributed to whomever is designated: spouse, children or others. A First Party SNT may be used only by those under age 65.
The second Supplemental Needs Trust is a Third Party SNT, created and funded by someone other than oneself (in Estate Planning typically, by a parent or grandparent). The Third Party SNT is most commonly used when parents leave money in their will to a child or young adult with special healthcare needs. In this case, the proceeds of the will (the gift) are not distributed directly to the child or young adult but instead to the SNT for the child’s benefit—generally for supplemental needs and items not provided by government entitlements, such as medical or dental treatment not covered by the government benefits, cosmetic care, vacations, and special furnishings.
The Third Party Trust must be created before a will is signed. The Third Party SNT does not, however, require repayment of accrued benefits to the State. Funds remaining at the time of death of the beneficiary may be designated to whomever the creator of the trust specifies. New York State ARC offers information and individuals who can assist you in understanding Supplemental Needs Trusts and their administration.