This article is sponsored by Ettinger Law Firm, and the information provided is for educational purposes only. I am not a lawyer, and this article is not legal or financial advice. Every person’s situation is different, so please speak with a qualified attorney or financial professional to understand what options may be best for you…
This article is sponsored by Ettinger Law Firm, and the information provided is for educational purposes only. I am not a lawyer, and this article is not legal or financial advice. Every person’s situation is different, so please speak with a qualified attorney or financial professional to understand what options may be best for you or your family.
For many parents and grandparents, few responsibilities feel as important — or as emotionally charged — as planning for the long-term financial security of a loved one with a disability. The desire to give support, comfort and opportunity is natural. Yet, there’s a hidden risk. Leaving money directly to a person with a disability can unintentionally disqualify them from helpful government programs such as Supplemental Security Income (SSI) and Medicaid.
This challenge has led many families to discover one of the most powerful legal arrangements available for protecting and enhancing their loved one’s future — the special needs trust (SNT).
What is a Special Needs Trust?
This legal entity holds and manages assets for the benefit of a person with a disability — the beneficiary. The defining feature of an SNT is that the assets belong to the trust, not the individual. Because of this separation, the funds are not counted toward the beneficiary’s personal asset limit when qualifying for means-tested programs like SSI and Medicaid.
An SNT must meet both federal and state requirements to be valid. Legal guidance is important to help families structure these arrangements correctly, making sure that they meet all compliance standards and deliver the intended protection.
What Can a Special Needs Trust Pay For?
The purpose of an SNT is to improve the beneficiary’s life. SSI and Medicaid cover only basic needs such as housing, food and medical care. The trust can pay for many other items that make life more comfortable, fulfilling and dignified.
Examples include:
- Educational expenses, training or tutoring
- Transportation costs, such as a modified vehicle
- Out-of-pocket medical and dental care not covered by insurance
- Assistive technology or adaptive equipment
- Hobbies, recreation and vacations
- Companion or personal care services
- Home furnishings or accessibility improvements
It’s important, however, that payments from the trust are made directly to the service provider or vendor, not to the beneficiary as cash. This “in-kind” payment method prevents reductions to SSI.
The Two Main Types of Special Needs Trust
Choosing the correct type of trust depends on whose money funds it. This distinction is important, as each type carries different legal requirements and long-term consequences.
Third-Party Special Needs Trust
This is the most common type used in estate planning. It is funded with assets belonging to parents, grandparents or other relatives.
Because the beneficiary never owned the assets, this trust is not subject to Medicaid “payback” rules. When your loved one dies, any remaining funds can be distributed to other family members or charitable causes. This flexibility makes the third-party SNT ideal for long-term family estate planning.
In practice, these arrangements are usually established as part of a comprehensive estate plan, either during parents’ lifetimes or through their wills. This ensures inheritances or life insurance proceeds flow safely into the trust, not to the beneficiary directly.
First-Party Special Needs Trust
This type of trust, sometimes called a “self-settled” SNT, is funded with the individual’s own assets. Common scenarios include receiving a personal injury settlement, inheritance or back payment from Social Security.
Federal law permits individuals aged under 65 with disabilities to create such a trust, provided that it includes a Medicaid payback provision. When the beneficiary dies, any remaining funds must reimburse the state for Medicaid benefits received during their lifetime.
Despite this restriction, first-party trusts are indispensable for individuals who acquire assets unexpectedly and risk losing benefits without proper planning.
The Importance of Professional Guidance
An SNT is not a simple form. It’s a sophisticated legal instrument that must align with both federal disability law and state trust law. Even a minor drafting error could jeopardize the beneficiary’s eligibility for SSI or Medicaid. These traps for the unwary can have serious consequences, undermining the future financial security you wish to provide.
A 2024 scoping review showed that families of children or adults with disabilities face significant barriers to future planning, including emotional difficulties, a lack of information about options, and financial concerns. It highlighted that professional support is a large factor in helping families overcome these issues and complete a comprehensive plan.
Planning for the Future
Wherever possible, you will want to involve the beneficiary in the planning process, as their voice is important for their own future.
Advances in health care and social support mean individuals with disabilities are living longer, more independent lives than ever before. For many people with developmental disabilities, average life expectancy is 70 years, rapidly catching up with that of the general population. This welcome longevity improvement underscores the need for sustainable funding. Parents and grandparents must plan beyond the present for a lifetime of support.
Survivorship Life Insurance
One effective strategy is survivorship life insurance, also known as “second-to-die” life insurance. This policy pays out only after both parents pass away, giving a reliable source of funding for a third-party SNT. Because it covers two lives, the premiums are typically lower than two separate policies, making it a cost-effective way to create future security.
Financial planners and estate attorneys often collaborate to design funding plans that balance tax efficiency with long-term stability, making sure that the trust will be adequately resourced for the beneficiary’s entire life.
The Letter of Intent
Beyond the financial and legal details, one of the most meaningful documents parents can prepare is a Letter of Intent. Although not legally binding, it serves as a powerful guide for future trustees and caregivers.
The letter outlines the beneficiary’s:
- Daily routines and habits
- Medical history and care providers
- Personal preferences, likes and dislikes
- Religious or cultural considerations
- Goals, values and social connections
Think of it as a roadmap to the individual’s life. While the SNT can provide financial support, the Letter of Intent provides context — helping caregivers to support independence and happiness.
Ettinger Law Firm — Your Special Needs Trust Partner
Ettinger Law Firm has decades of experience in special needs trusts, and as one of the largest trust law firms, it is ideally placed to guide families through these complex decisions. Crucially, its experienced attorneys can draft your SNT to be as adaptable as possible. This means that as laws or the beneficiary’s needs change, you can be assured that protection will continue as you intended.
Setting up an SNT can be a deeply emotional process, as it forces families to confront a future where their loved one is without them. Ettinger Law Firm has been trusted by generations of New York state families and client testimonials highlight its attorneys’ compassion. They can walk you through the whole process with warmth and empathy.
The firm’s trademarked Lifetime Estate Planning Process monitors your arrangements yearly for any law changes that may impact your SNT plans. They also provide a free triannual review. With expert knowledge, over 35 years of experience and 12 offices across New York, Ettinger Law Firm is ready to bring your family peace of mind through a special needs trust that will uplift your loved one throughout their lifetime.
Building a Foundation for Peace of Mind
Creating a special needs trust is more than a financial decision. It’s an act of love and foresight, ensuring that a loved one with a disability can maintain eligibility for essential government programs while enjoying a rich, rewarding life.
By working with knowledgeable legal professionals, families can establish a comprehensive plan. From selecting the right type of trust to planning for future funding and documenting personal wishes, every detail contributes to lasting peace of mind.
