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Can you set up a special needs trust in New York?

On Behalf of | Aug 8, 2022 | Trusts

If you leave behind an inheritance for your special needs child in New York, they may become ineligible for government benefits. They must wait until they have used their inheritance to apply again for government benefits. The way to prevent this from happening is to pass on their inheritance through a special needs trust.

Qualifications

New York estate planning law stipulates that the beneficiary of a special needs trust must have a severe and chronic or persistent disability. Mental illnesses and mental impairments may qualify, as well as developmental disabilities. The beneficiary must also have a condition that requires long-term specialized care. If they may need to rely on government assistance, then they usually qualify for a special needs trust.

Medicaid

If you set up a self-settled special needs trust, then after the beneficiary dies, any money remaining in the account goes back to Medicaid to pay back medical coverage. Self-settled special needs trusts contain assets from a court settlement, an inheritance or other similar sources. Third-party trusts use funding from the person who set them up. These trusts don’t need to pay back Medicaid after the beneficiary dies.

Parents who set up a special needs trust for their child won’t have their eligibility for Medicaid or SSI affected because the money is for their child’s benefit. Friends and relatives could also make contributions to the trust without affecting eligibility for government benefits. The caveat is that the beneficiary must not be 65 years old or older in this situation.

Setting up a special needs trust is essential if your loved one has a disability that falls under the state’s definition of special needs. This type of trust protects their ability to continue receiving their government benefits without having to use up their inheritance faster.

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