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Understanding Supplemental Needs Trusts

Supplemental Needs Trust Attorneys in Suffolk, Nassau, Brooklyn, Queens, New York

Supplemental Needs Trusts (SNTs) are legal tools used to help disabled people keep more of their income or assets without losing their public benefits. The attorneys at CHRISTINE THEA RUBINSTEIN and associates are not only trained in handling simple estate probate matters, we take care of complex estate litigation in the event of a contest or fraud in Nassau County, Suffolk County, Queens County, Bronx, Westchester, Richmond County, Manhattan and Brooklyn Kings County New York.  SNTs were originally created to allow parents of children with developmental disabilities to provide for them after they grow up without making them ineligible for public benefits (like SSI and Medicaid). Ordinarily, if a parent set up a trust fund for their disabled child with $100,000 in it (for example), this would make them ineligible for public health insurance such as Medicaid. To avoid this, lawyers created special trust funds, which are structured in such a way that they do not impair a person’s eligibility for public benefits. They supplement the disabled beneficiary’s benefits, rather than replace them; hence the name Supplemental Needs Trust.  Another way that SNTs are used is to shield excess income for Medicaid purposes. By using an SNT in this way, a disabled Medicaid recipient can actually keep the benefit of almost all of their income, rather than having to pay a portion of it towards the cost of their care (e.g., for home care services). Income placed in an SNT can also qualify someone for a Medicare Savings Program. See Fair Hearing No. 4399513P (Nassau Co., Jan. 31, 2006)(available in WNYLC Online Resource Center, Fair Hearing Database, free registration required).


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An SNT can also be used where a disabled person under age 65 receives a lump sum (such as a retroactive Social Security award or personal injury settlement). Ordinarily, this asset would make the individual ineligible for Medicaid, SSI, and other benefits. By transferring it to an SNT, the person can remain eligible for all their benefits, and use the money in the SNT to supplement their regular income for years to come.
A Supplemental Needs Trust is a trust created for a chronically and severely disabled beneficiary which supplements government benefits such as Medicaid rather than diminishing such benefits. Medicaid and other government benefit programs consider the resources and income of an individual for purposes of determining eligibility for assistance and the amount of such assistance. With a Supplemental Needs Trust, however, a person such as a family member may establish a trust for a disabled individual without jeopardizing the beneficiary’s eligibility for Medicaid and other government benefits. With recent changes in federal and state law, trusts for disabled persons may even be established with the disabled person’s own funds, if certain strictures are followed.
Pursuant to New York EPTL §7-1.12(a)(4) and (5), a supplemental needs trust is a “discretionary” trust established for the benefit of a person with a severe and chronic or persistent disability and whose disability is expected to, or does, give rise to long-term need for specialized services. EPTL §7-1.12(b)(3) provides that neither principal nor income held in trust shall be deemed an available resource under any government benefit or assistance program.
Generally, there are two types of supplemental trusts for disabled persons. The first type is established for a disabled person with the funds of someone other than the disabled person, or the disabled person’s spouse, or someone legally responsible for the expenses of care for the disabled person. This is referred to here as a “third-party” trust. The history of the use of third-party trusts for disabled beneficiaries evolved in three steps: (1) purely discretionary trusts, (2) Escher type trusts and (3) Statutory Supplemental Needs Trusts under EPTL §7-1.12. The use of the three types of trusts and how they affect government entitlement will be described briefly below.
If the third-party trust gives complete and total discretion over distribution of income and principal to the trustee, then the income and/or principal is not counted by the government benefit program unless the trustee actually makes it available to the beneficiary. In New York since 1966, the invasion of trust corpus for the support, maintenance and education of a beneficiary has been governed by EPTL §7-1.6. This statute allows a court having jurisdiction over the trust to use its discretion to make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for. Nonetheless, EPTL §7-1.6 is easily avoided by providing “in the disposing instrument” that the section shall not apply. However, trusts giving unlimited, absolute or uncontrolled discretion to a trustee are still controlled by a reasonableness standard and the trustee must act in a way contemplated by the grantor. See Restatement of the Law Second, Trusts 2d §187(j). Thus, even after excluding invasion pursuant to EPTL §7-1.6, some practitioners still questioned whether a court could invade such a trust if it found that the original purposes of the trust could not be carried out without allowing the use of trust principal.
Trusts specifically intended to supplement rather than supplant government benefits have generally been exempt from consideration by Medicaid since 1978, based on Matter of Escher.[1] This case, which was decided by Surrogate Gelfand in the Bronx and eventually approved by the New York Court of Appeals, has come to stand for the proposition that a settlor’s clear intent to supplement rather than supplant public benefits for a third party should be honored. Even though the trust upheld in Escher was a testamentary trust, an inter vivos trust will also be exempt from consideration by Medicaid if the person setting up the trust was not establishing the trust for his or her own benefit or for the benefit of a spouse.
Matter of Escher and other cases eventually resulted in the adoption of EPTL §7-1.12. EPTL .§7-1.12, which became effective in July of 1993, permits a third party to establish an inter vivos Supplemental Needs Trust that is specifically intended to supplement rather than supplant government benefits and which restricts the trustee from spending assets in a manner that can reduce government benefits. The statute, however, includes language stating that the codification affects only conforming Supplemental Needs Trusts, and “nothing in this section shall affect the establishment, interpretation or construction of trust instruments which do not conform with the provisions of this section….” EPTL §7-1.12(f). Therefore, trusts that do not meet all of the statutory standards may still work pursuant to the common law.
The second type of supplemental trust for a disabled person is established with the funds of the disabled person or the disabled person’s spouse. In New York Chapter 170 of the Laws of 1994 allows these trusts if certain conditions are met. Prior to the enactment by Congress of the Omnibus Budget Reconciliation Act of 1993 (OBRA 93)[2] there was some controversy over whether an inheritance, a medical malpractice or personal injury settlement or award had to be considered as funds belonging to the disabled person, and therefore affecting the eligibility of the disabled person for government benefits. In a situation where a disabled person was expecting an inheritance or a personal injury recovery, but instead of the money going directly to him or her, the court created a trust and the estate or the defendant deposited the funds directly into the trust, there was a question as to whether the trust would be considered a third-party trust or a self-settled trust.[3]


Trust vs WillsRemoval of a Trustee * Guardianship * Probate * Beneficiary Rights
In Home Care * Supplemental Needs Trusts  * Fraudulent Transfers * Guardianship Litigation
Medicaid Asset Protection * Probate Litigation * Estate Litigation * Living Trusts


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