Planning for a Disabled Child in New York

Retain Government Benefits for Your Child

The last thing you would want is for your child to lose government benefits because of inheritance. A Supplemental Needs Trust, (also known as Special Needs Trust) enables you to leave an unlimited number of assets for your disabled or ill child. Assets contained in such a Trust are not considered countable assets for purposes of qualification for government benefits such as Medicaid, Supplemental Security Income (SSI), vocational rehabilitation, subsidized housing, and other benefits based upon financial need.

Supplemental Needs Trusts are completely legitimate. The Omnibus Budget Reconciliation Act passed by Congress in 1993 specifically authorized the use of Supplemental Needs Trusts for the benefit of individuals who are under the age of 65 years and disabled according to Social Security standards. The Social Security Operations Manual (POMS) authorizes Supplemental Needs Trusts for non-countable assets.

Special Needs Trust is Also a Valuable Estate Planning and Investment Tool

Many parents use the Supplemental Needs Trust as a tool to leave assets to their child after their death. The same trust can be used for your child’s own assets, such as an inheritance from someone else, proceeds of a lawsuit, insurance proceeds, even lottery winnings.

Special Needs Trust Provides Protection from Creditors

Because a Special Needs Trust is not revocable, assets in such trusts are not easily reachable by future creditors and are hard for the courts to reach if there is ever a judgment against the disabled beneficiary

Most Assets in a Supplemental Needs Trust are not Subject to Repayment

Assets contributed to a Supplemental Needs Trust by parents or third parties are not subject to repayment to the government. The same goes for proceeds of personal injury settlements that are court-ordered into the Trust. Only assets that at some point belonged to the disabled person can be taken back by Medicaid and even that occurs only after the death of the disabled individual.

Appointing a Co-Guardian

If you have a disabled or ill child over the age of 18, chances are you are already the child’s legal guardian. Appointing a co-guardian will make sure that the child will not be left without a guardian upon your death. Usually, the child’s sibling serves as the guardian after the parents’ death.

Call the Law Offices of Albert Goodwin at (212) 233-1233 and make an appointment to discuss planning for your child’s special needs.

The Benefits at Stake

The reason special-needs planning matters so much is that the public-benefit programs available to disabled individuals — SSI, Medicaid, Medicaid waiver programs, subsidized housing, vocational rehabilitation, Medicare savings programs, food assistance — all have asset limits, sometimes very low. A direct inheritance can disqualify the beneficiary from one or more of these programs. The disqualification can be temporary (until the inherited assets are spent down) or permanent depending on the program and the specifics. Either way, the disqualification can be devastating because the public programs often pay for medical care and supports that the individual could never afford to replace privately.

SSI's resource limit is $2,000 for a single individual. Medicaid in New York generally tracks similar resource limits for non-MAGI categories. A $50,000 inheritance — modest by ordinary standards — wipes out eligibility for both programs until the funds are spent down to the limit. Spending down through ordinary consumption can take years and the individual loses all the benefits during that time.

First-Party vs. Third-Party Special Needs Trusts

The distinction between first-party and third-party special needs trusts matters significantly:

Third-party special needs trust. Funded with assets from someone other than the disabled beneficiary — typically parents through their wills, grandparents, or other relatives. The beneficiary has no claim of right against the trust. The trust is fully discretionary on the trustee's part. No Medicaid payback applies; on the beneficiary's death, the remainder passes to other beneficiaries the grantor named.

This is the structure parents use when planning for a disabled child. Parents create the trust during life (or in the will) and direct that their assets go to the trust for the child's benefit. Other family members who want to give to the child can also direct gifts and bequests to the third-party trust.

First-party special needs trust. Funded with the disabled beneficiary's own assets — typically a personal injury settlement, an inheritance the beneficiary received directly, or back Social Security benefits. To preserve benefits eligibility, the assets must be transferred into a properly structured first-party SNT. The trust is subject to Medicaid payback at the beneficiary's death — the state can recover the cost of Medicaid services paid during the beneficiary's lifetime from any assets remaining in the trust.

First-party SNTs come in two main varieties: the (d)(4)(A) trust (authorized by 42 U.S.C. § 1396p(d)(4)(A)) and the (d)(4)(C) pooled trust. The (d)(4)(A) trust is for individuals under 65. The (d)(4)(C) pooled trust is operated by a nonprofit and is the more flexible structure in many cases.

What a Special Needs Trust Can Pay For

The trustee of a special needs trust uses the trust funds for things that supplement, not replace, the benefits the beneficiary receives. Examples of permitted distributions include:

• Educational expenses, including private tutors, special schools, and continuing education.
• Recreational activities — entertainment, vacations, hobbies, sports.
• Personal companion or aide services beyond what Medicaid covers.
• Therapeutic services not covered by insurance.
• Adaptive equipment, technology, communication devices.
• Transportation, including vehicles modified for accessibility.
• Furniture, electronics, computers.
• Personal grooming, clothing, and other comforts.
• Funeral and burial arrangements (within limits).

The trustee should not provide cash directly to the beneficiary, because direct cash counts as income that can affect benefits. The trustee should pay providers directly or purchase items on behalf of the beneficiary.

Choosing the Trustee

Selecting the right trustee is one of the most consequential decisions in special needs planning. The trustee will be making distribution decisions over many years, sometimes decades. The candidates include:

Family members. Often a sibling of the beneficiary or another close relative. The family trustee has personal knowledge of the beneficiary and personal motivation to do the work well. The risks are death or incapacity of the family trustee, inexperience with trust and benefits administration, and family dynamics that can complicate decisions.

Professional trustees. Banks, trust companies, and law firms that handle special-needs trusts. They bring experience, continuity, and procedural discipline. They charge for their services, which reduces the assets available for the beneficiary.

Pooled trust nonprofits. Organizations that operate (d)(4)(C) trusts and serve many beneficiaries. They are often the most cost-effective option for smaller trust funds and offer expertise in benefits coordination.

Co-trustees. A family member and a professional working together, each bringing their respective strengths.

Coordinating with Other Estate Planning

Special needs planning doesn't exist in isolation. It needs to coordinate with the family's broader estate plan. Coordination points include:

• Updating the parents' wills to direct the disabled child's share to the trust rather than to the child outright.
• Updating beneficiary designations on retirement accounts, life insurance, and other accounts to name the trust as beneficiary where appropriate.
• Letting other family members know about the planning so that grandparents and others can direct their gifts to the trust as well.
• Considering life insurance funded through an ILIT to provide additional resources for the trust.
• Periodic review of the plan as benefits rules and family circumstances change.

The ABLE Account Alternative

ABLE accounts (named for the Achieving a Better Life Experience Act of 2014) provide another savings vehicle for individuals with disabilities. An ABLE account holds funds that do not count against SSI and Medicaid resource limits (up to the first $100,000 for SSI purposes). The funds can be used for "qualified disability expenses" similar to SNT distributions.

ABLE accounts have annual contribution limits and lifetime contribution limits (set by state). They are most useful for smaller amounts the beneficiary can manage directly, while the SNT handles larger sums. The two tools complement each other.

Letter of Intent

One supplementary document that many parents prepare alongside the legal documents is a Letter of Intent. This is an informal but detailed document describing the beneficiary — their preferences, routines, medical history, behavioral patterns, important relationships, what makes them comfortable, what causes distress, and what kind of care has worked over the years. The Letter of Intent provides essential context for the future trustee and any caregivers who take over after the parents are no longer involved.

The Letter of Intent is not legally binding but is enormously practical. It captures decades of knowledge that would otherwise be lost. We help parents structure these letters as part of the broader planning project.