What Is a Special Needs Trust www.myestateplan.com 1

“Estate planning can seem like an exercise in slicing up a pie into different pieces that can be distributed in lump sums to your loved ones after you pass away. In reality, this is quite

an oversimplification for many families.”

WHAT IS A NEW YORK

SPECIAL NEEDS TRUST?

MARK S. EGHRARI NEW YORK ESTATE PLANNING ATTORNEY

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There are different ways to facilitate asset transfers. Your personal circumstances

will dictate the ideal course of action, and the life situation of each person on your

inheritance list will also be part of the equation. The best way to provide for one

of your family members may not be appropriate for the next.

With the above in mind, we will look at the value of special needs trusts in this

paper.

PEOPLE WITH DISABILITIES & GOVERNMENT BENEFITS

If you have a loved one with a disability that you want to provide for, you have to

consider government benefit eligibility. A significant percentage of people with

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special needs are enrolled in the Medicaid program. This is a health insurance

program that is jointly administered by the federal government along with each

respective state government.

Medicaid is a program that is intended for people with financial need. If you have

resources to speak of, you cannot qualify for Medicaid coverage. Since many

people with special needs are not in a position to earn much income, Medicaid is

often going to be the health care insurance solution.

Eligibility for Medicaid coverage

is not necessarily permanent. An

improvement in financial status

can cause a loss of eligibility. As

a result, if you were to leave a

direct inheritance to a loved one

who is relying on Medicaid, the

coverage could be interrupted.

The same thing could be true if you were to give a Medicaid recipient a significant

direct gift while you are living.

There is another government benefit program that provides income for disabled

people with very limited financial resources. This is the Supplemental Security

Income program. Once again, eligibility is not permanently etched in stone. An

improvement in financial status can result in a loss of eligibility for SSI.

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SPECIAL NEEDS TRUSTS

Now that we have shared the appropriate background information, we can look at

the value of special needs trusts. These trusts are alternately referred to as

supplemental needs trusts.

When you convey your own assets into a special needs trust for the benefit of

someone with a disability, it is considered to be a third party special needs trust.

A trustee is named in the trust declaration to administer the trust.

The beneficiary cannot directly control the actions of the trust, and the

beneficiary cannot receive direct monetary distributions. However, under

government program regulations, the trustee can use the assets in the trust to

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satisfy some of the beneficiary's unmet needs. As long as the expenditures are for

approved purposes, government benefit eligibility would not be impacted.

There would be no reimbursement efforts by the Medicaid program after the

death of the beneficiary if the funding from the trust came from a third party. In

some cases, a disabled

person who is enrolled in

need-based government

benefit programs will

receive a personal injury

settlement, or a life

insurance payout. Under

these circumstances, a first

party special needs trust

can be established and

funded with the

beneficiary's personal

resources.

The same scenario would exist with regard to the ability of the trustee to use

assets in the trust to satisfy the unmet needs of the beneficiary without causing a

loss of benefit eligibility. However, after the beneficiary's passing, Medicaid

would seek reimbursement from his or her estate. As a result, assets that remain

in the trust would probably wind up in the Medicaid coffers.

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SUMMARY

People with special needs rely on government benefits in many cases. Medicaid is

a source of health insurance, and Supplemental Security Income or SSI can

provide ongoing financial support.

These are need-based benefits, so there are asset limits. An improvement in

financial status can cause a loss of eligibility.

To respond to this type of scenario, a special needs trust could be created. Assets

in the trust could be used to improve the beneficiary's quality of life, but benefit

eligibility would not be jeopardized if the trust is properly constructed and

administered.

We have provided a basic overview in this paper. To learn more about special

needs planning, set up a consultation with a licensed estate planning attorney.

REFERENCES

American Bar Association http://www.americanbar.org/newsletter/publications/law_trends_news_practice_area_e_newsletter_home/0501_estate_financialplanning.html National Alliance on Mental Health http://www.nami.org/Content/NavigationMenu/Find_Support/Legal_Support/Special_Needs_Estate_Planning/Special_Needs_Trust_Primer.htm

Nolo http://www.nolo.com/legal-encyclopedia/using-special-needs-trust-when-you-have-too-many-assets-medicaid.html

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About the Author

Mark S. Eghrari

Mark S. Eghrari is an attorney in private practice in Smithtown, New

York. He has been in practice since 1988. Mark S. Eghrari provides

extensive estate and tax planning services to individuals and

businesses. Mr. Eghrari’s primary focus is helping clients avoid

probate, minimize or eliminate Federal and State Estate taxes and

protect their assets from the high cost of nursing care, if they become

ill. Mr. Eghrari’s expertise is in providing unique and innovative

estate planning solutions that create a secure future for his clients and their loved ones. Mr.

Eghrari is a member of the American Bar Association and New York State Bar Association as

well as the National Academy of Elder Law Attorneys and the American Academy of Estate

Planning Attorneys.

Mr. Eghrari completed his undergraduate work at Lafayette College in Easton, Pennsylvania

and received his MBA in banking and finance from Hofstra University on Long Island. He

earned his Juris Doctorate from the Hofstra University School of Law, where he was a member

of the Law Review. While in law school, Mr. Eghrari gained practical experience in the

corporate tax department of Citicorp in New York city.

Mark S. Eghrari and Associates PLLC www.myestateplan.com 50 Karl Avenue, Suite 202 Smithtown, NY 11787 Phone: (631) 265-0599 Fax: (631) 265-0754