What is the purpose and benefit of having a Supplemental Needs Trust?

A Supplemental Needs Trust (SNT), also known as a Special Needs Trust, is designed to manage assets and provide for the financial needs of individuals with certain defined disabilities or special needs. It allows disabled individuals to gain access to additional resources to enhance their quality of life without jeopardizing their Medicaid or Supplemental Security Income (SSI) entitlements. Assets placed in an SNT may only supplement, not supplant assets or income provided by government entitlement programs.

In New York, there are two types of SNTs: first-party SNTs and third-party SNTs. A first-party SNT is settled by the disabled individual and funded with his or her own assets. To be eligible for a first-party SNT, the disabled individual must be under 65 years of age and meet the Social Security Administration's definition of what is considered a ‘disability’. Upon the death of the disabled individual, any remaining assets in the trust must be used to reimburse the state for Medicaid benefits received by the disabled individual. In contrast, a third-party SNT is funded with assets that are not owned by the disabled individual. Additionally, the third-party SNT must be established by a parent, grandparent, legal guardian, or a court. Family members, friends, or other concerned parties may also create this trust to benefit the disabled individual. Unlike a first-party SNT, there is no payback requirement after the beneficiary's death.

An SNT may be appropriate when a disabled individual is expected to receive an inheritance, a personal injury settlement, or any other significant amount of money - it can help to protect those assets. Without an SNT, the sudden influx of assets could disqualify the individual from government benefits. Also, should the family member decide to take out a life insurance policy for the disabled individual, naming the SNT as the beneficiary of the policy can ensure that the policy proceeds are managed properly for the benefit of the disabled individual.

Once an SNT has been established, it must be properly administered to ensure that it is in compliance with state law. The trustee plays a crucial role in managing the SNT and making trust distributions for the disabled beneficiary's benefit . The trustee must manage the SNT’s assets and make distributions according to its terms. The SNT trustee has the power to invest the trust assets, pay bills, manage financial affairs, and make discretionary distributions for the disabled beneficiary. It is important to choose a trustee who has the necessary financial acumen, knowledge of the disabled beneficiary's needs, and a commitment to act in the disabled individual’s best interest. The trustee must periodically coordinate with the appropriate agencies and work with government caseworkers and maintain ongoing communication to ensure compliance with the complex rules governing Medicaid and other governmental entitlement programs. He or she must also keep accurate and detailed records of all trust transactions, including income, expenses, investments, and distributions. This is essential for transparency and accountability, as well as for potential audits by government agencies.