Drafting Wills & Trusts for Beneficiaries with Special Needs in New York

Michael and Joan came in to my Queens estate planning office to re-draft estate planning documents that they had prepared over a decade ago. Their wills, like those of many married couples, left everything to each other. If one of them passed away first, the wills had mirroring provisions which left 10% of the estate to Joan’s brother, Tom, with the remainder, 90%, split evenly between their three children. From the face of it, their wills looked alright, but their accountant advised them to see me about updating their plans. We were all glad that he did, since much had changed since they had their estate plan prepared. Joan’s brother’s medical situation worsened and he was receiving Supplemental Security Income, also known as SSI. Additionally, their third child, David, who was only 6 months old when their prior wills were prepared, was determined to be developmentally disabled and would need Medicaid as he got older.

Had Michael and Joan kept their wills the way they were, their bequests would have disqualified Tom from SSI and David from Medicaid until their portion of the inheritance was spent down. I advised the couple that they should prepare a new estate plan which does not give any outright bequest to a beneficiary who is receiving means tested government programs such as Medicaid and SSI. As a elder law attorney, I understand how important it is to preserve assets while receiving benefits.  Instead, I explained the benefits of incorporating a testamentary Supplemental Needs Trust (SNT) into their wills (the same concept can be applied to living trusts).

A supplemental needs trust, sometimes referred to as a special needs trust, allows a person to leave a bequest to a beneficiary in trust instead of outright. The trust, which is authorized in New York under EPTL 7-1.12, would allow the beneficiaries to qualify for government benefits while receiving distributions from the trust if the following conditions are met: (1) the beneficiary suffers from a severe and chronic or persistent disability; (2) the trust document clearly states that the bequest should be used to supplement, not supplant, government benefits; (3) the trust prohibits the trustee from using the assets in a way that may impair or diminish the beneficiary’s entitlement to government benefits or assistance; (4) the beneficiary does not have the power to assign, encumber, direct, distribute or authorize distribution of trust assets; (5) the distributions are at the sole discretion of the trustee(s) and are not mandatory.

If Joan and Michael give Tom and David their inheritance in trust, the assets in the trust will not be considered the beneficiaries’ assets for purposes of eligibility for SSI or Medicaid, thereby letting them keep their benefits along with their inheritance. The trustee(s) of the trust will be able to use the principal and/or income to provide Tom and David with their needs, beyond what Medicaid or SSI provides. They will be able to purchase necessary medical equipment and pay for additional care. They could also purchase a car, home, or even a vacation. It is important to note that, for SSI purposes, payments made for food, clothing or shelter are considered "unearned income" and will reduce SSI benefits by up to one-third. The SNT may own a residence where the beneficiary can live without a reduction to his or her SSI. Unlike SSI, Medicaid does not impose this penalty. If the beneficiary is a Medicaid recipient, payments can be made for various needs including food, clothing, or shelter with no reduction in benefits or eligibility.

Michael and Joan can were advised that they can use the SNT to provide for a disabled child and sibling for life. As long as the trust was funded after their legal duty to support beneficiary ended, the couple is free to direct how any unused trust property will be distributed upon the beneficiaries’ deaths. They could direct that the funds be given to their other children or grandchildren if it was not used up during the beneficiaries’ life. This is an ideal and statutorily authorized tool to allow a disabled person to get the care they need, while allowing their family to provide them with benefits that government programs don’t pay for.

To discuss your particular situation with a New York estate planning attorney, contact our office at 347-766-2685 today.

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