Supplemental Needs Trusts
Supplemental Needs Trusts (SNTs) are designed to allow a disabled individual to receive the benefits of additional assets, while still receiving the care they need through government benefits, such as Medicaid and Social Security Disability Income. New York State law allows third parties, such as parents, other family members or friends, or even disabled individuals themselves to establish a Supplemental Needs Trust in which the assets in the trust are spent on behalf of the disabled individual. It is essential that the trust document state clearly that the trust assets not be used to conflict with the government benefits provided, otherwise the government benefits, such as Medicaid, could be jeopardized.
The so-called "third-party" SNTs are established and funded by a parent or other third party who does not have a legal obligation to support the disabled individual. Third parties will contribute their funds to the trust. Third-party SNTs may be intervivos, which means they are stand-alone trusts, or they can be testamentary, which means they are part of someone's will and go into effect upon the passing of that person.
Upon the death of the disabled person, the remaining assets in the third-party SNT will pass according to beneficiary designations in the trust or will.
A first-party SNT is established with the funds of the disabled individual, often after they are awarded a settlement or a verdict in a personal injury lawsuit. A first-party SNT must include a so-called "payback provision," which means that upon the individual's death, Medicaid will be paid back the amount expended for the care of the disabled individual since the SNT was established.
In New York, first-party "payback" SNTs must be established by a parent, grandparent, guardian or by the court. If the disabled individual is under age 65, an individual trust is permitted. If the disabled individual is 65 or older, the SNT established must be a pooled trust through a non-profit agency.
Regardless of the type of SNT, the assets in the trust are never distrbuted directly to the disabled individual. As examples, the assets may be used to pay for such things for the disabled individual as food, clothing, education, travel, recreation, electronic equipment and/or additional medical assistance not paid for by Medicaid, or to pay the disabled individual's bills. Payments are made directly to third parties, not to the disabled individual. (Additional restrictions for use of the SNT funds may apply if the disabled individual receives SSI.)
In New York City, I think it is advisable to have the individual SNT pre-approved by Medicaid before it is signed, so the existence of the trust does not pose an obstacle for the disabled individual to receive Medicaid.