New York Estate Planning & Elder Law Blog
A growing family often includes children. Sometimes, children come with special needs that need to be attended to throughout their lives. These special needs can include physical, mental, emotional, and/or developmental disabilities. When such needs arise, they can cost a great deal of money on a regular basis. A common concern parents or family members of individuals with special needs often have is how those individuals with special needs will be taken care of later in lifer when parents or family members have passed on. For these families, a special needs trust might be the answer.
An Introduction to Special Needs Trusts
A special needs trust is a trust established to address the long term needs of an individual with a disability that may require lifelong care. Many individuals with disabilities may qualify for state benefits and assistance to help offset the cost of long-term medical care and other costs that may arise. If the parents or family members of a person with special needs were to leave assets to the person with special needs, the inheritance may cause the individual to lose benefits provided by the state because the inheritance could cause their income to surpass the level under which a person is eligible for state benefits.
A special needs trust can accomplish the goal of providing for an individual with special needs above and beyond the benefits potentially provided by the state without risking the loss of those benefits, and can be established to provide things such as:
- Supplemental health care and medication not covered by benefits;
- Transportation, including a car for individuals capable of operating one;
- Personal services for individuals residing outside of assisted living communities that can include things like landscaping, housekeeping, and other in-home services;
- Household items such as furniture, electronics, décor; and
- Costs for funeral and burial services for the individual with special needs.
- There are two types of special needs trusts. The first is known as a first party special needs trust where an individual
There are two types of special needs trusts. The first is known as a first party special needs trust where an individual sets up a trust using money belonging to the person with special needs. The individual with special needs may have received this money as an inheritance or even as an award for damages caused in an accident. This type of trust will ultimately require the paying back of any benefits received upon the special needs individual’s death. The other type of special needs trust is known as a third party special needs trust. A third party trust is established using personal funds from the person establishing it and does not include a payback provision.
Regardless of the type of special needs trust you are able to establish, it is important to keep in mind that any money an individual personally receives from the trust will usually reduce the amount of government benefits they receive by the same amount. Eventually, an individual could actually lose their monthly benefits because of this reduction, which could lead to the individual also losing their medical coverage if the state provides it. It is extremely important that a trust be set up in a way that directs it to provide payment directly to the provider of a good or service instead of to the individual for whom the trust has been established. There are also other potential tax consequences that come with the two types of special needs trusts, and an experienced estate planning attorney can help you determine how those could affect you.