“Self-Settled” Supplementary Needs Trusts allow beneficiaries to contribute

Planning for the future of a child with special needs involves the use of a variety of legal tools. A Supplementary Needs Trust is one of the most widely known and widely used of these tools. Parents and guardians involved in special needs planning will want to establish a Supplementary Needs Trust for their child, and in some cases they may want their child to be able to contribute to his or her own trust.
Supplementary Needs Trusts, also known as Special Needs Trusts, are a reliable way to guarantee a child with special needs will have the income he or she needs while keeping important public benefits like SSI and Disability. Most Special Needs Trusts are established as third party trusts. That is, people other than the beneficiary must fund the trust.
But what if an individual with special needs is able to use his or her own money and wishes to provide funds for the trust? New York provides for two types of exception, or self-settled, Supplemental Needs Trusts that may be funded with an individual’s own money. These are known as individual trusts and pooled trusts.
The difference between individual and pooled trusts lies in both the management of the trust and the treatment of funds left in the trust after the death of the beneficiary. Individual trusts are similar to third part Special Needs Trusts. They are established for the benefit of a single individual and are managed by a trustee. Pooled trusts must be set up and managed by a non-profit association. According to New York law, as a provision of a pooled trust, a separate account is maintained for the benefit of the individual with special needs.
The most important thing to remember about a self-settled trust is that it must contain a payback provision. That is, assets left in Self-Settled trusts after the death of the beneficiary cannot be immediately passed on to other heirs. In the case of an individual self-settled trust, funds must be used to pay back Medicaid. Any monies left in the trust after Medicaid has been repaid may then be distributed to other beneficiaries.
Funds remaining in a pooled trust must be kept by a non-profit trustee. Because of this, pooled trusts may be a way to provide security during the lifetime of an individual with special needs while also leaving funds to a non-profit organization of importance to your family.
Establishing a Special Needs Trust as a part of your estate plan will give your family the security of knowing that your loved one will be provided with extra income while retaining important public benefits. Knowing your Special Needs Trust options will help you make the best possible decision for your child.

Bernard Krooks is a New York Elder Law and New York Estate Planning lawyer with offices in White Plains, Fishkill, and New York, New York. To learn more, visit Littmankrooks.com.