Special Needs Planning: Understanding Special Needs Trusts and Guardianships

This article was published by Cerini & Associates LLP.

Creating an estate plan is important for everyone. However, for families with a special needs child, proper planning is nothing short of critical. Understanding the types of Special Needs Trusts is the best place to start to protect your loved ones.

Creating a Last Will and Testament should be the first order of business for parents of a child with special needs. It is important to make sure that your child’s inheritance is directed into a Supplemental Needs Trust (also called a Special Needs Trust or "SNT") for the child’s benefit. SNTs permit disabled individuals to retain funds from an inheritance without eliminating or reducing government benefits, such as Medicaid or SSI benefits. SNTs are highly favored under the law but have very particular rules. It is important to know which trust is right for you and your family as well as the consequences of each.

Third Party Special Needs Trusts

Third Party SNTs are special needs trusts established by an individual such as a parent or grandparent with their assets for the benefit of a third party, such as a child or grandchild with disabilities. A Third Party SNT may be established and funded during the creator’s lifetime (a living SNT) or may be established in a Last Will and Testament (a testamentary SNT) and therefore not created or funded until the death of the testator. In either case, the creation or funding of the Third Party SNTs has no effect on the beneficiary’s eligibility for government benefits. Further, as another individual’s assets are used to fund the Third Party trust, there is no pay-back requirement to the State. Instead, any assets remaining in the Third Party SNT at the time of the beneficiary’s death may be inherited by other family members or beneficiaries.

Self-Settled Supplemental Needs Trusts

This type of SNT must be established by a parent, grandparent, legal guardian or the disabled person themselves (if they have capacity) under the age of 65. The trust is funded with the assets of the person with special needs, such as lawsuit proceeds, retroactive government benefits or an inheritance which was left outright to them. The trust must be a payback trust and therefore any funds remaining in the trust upon the death of the beneficiary must be paid back to the government as reimbursement for the cost of care.

Expenditures from SNTs

Monies held in an SNT can be used to pay for personal care items, vacations, transportation (including purchase of a car or van), purchase of a home, modifications to a home (such as installation of ramps or wheelchair accessible bathrooms), computer equipment, special medical or therapeutic equipment, personal care aides, and medical care not provided by government programs. Payment for such items must be made directly to the service provider, retailer or vendor. Money cannot be distributed directly to the trust beneficiary.

Pooled Trusts

A pooled trust is a type of SNT that is maintained by a non-profit organization which pools the funds of a number of individuals for investment and management purposes. A pooled trust can be funded by a parent, grandparent, legal guardian or the individual with special needs himself. The trust must be funded before the beneficiary reaches age 65 in order to avoid Medicaid penalty periods. While a self-settled trust must be a payback trust, the sponsor can elect to leave any remaining funds with the charitable organization instead of paying back the government.

17A Guardianships

In New York State, when a person turns 18 years of age, they are assumed to be legally competent to make decisions for themselves. This means that no other person, including their parents, can make medical, financial or personal decisions for them. Parents of children with special needs must plan for the child’s care beyond the age of 18. If parents wish to continue to make important decisions for their child after age 18, such as medical care and residential placement decisions, they must become the legal guardians of the child. A petition to become the guardian in this case is typically brought in the Surrogate’s Court and is appropriate for children with intellectual or developmental disabilities.

A 17A guardianship covers most decisions that are usually made by a parent for a child, including healthcare and financial decisions. The Court can appoint a guardian of the person, the property or both. Certifications are required from physicians and psychologists attesting that the child is not able to manage their affairs because of intellectual disability or developmental disability.