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Types of Special Needs Trusts: Guide for New Yorkers

National Special Education Resources

Securing the Future for Your Child with Special Needs

As the parent of a child with special needs, you’re ever-vigilant about finding the best arrangements for your child—from their health care, to their special education opportunities to their everyday happiness.

And you want to know that someday—when you can’t be there for them every day—they will be well taken care of.

One of the most important tools you need to know about is a special needs trust.

A special needs trust is a way to set aside money for your child’s future without risking their access to government benefits that are granted based on having limited financial resources.

You’ve got some decisions to make about which type of special needs trust to create.

A special needs planning lawyer can guide you through the process of setting up and administering a special needs trust for your child.

At the Cuddy Law Firm, special needs planning is what we do. Our mission is to help you ensure a secure future for your child. Our Westchester special needs planning lawyers help families in New York City, Westchester County, Upstate New York and across the state.

Keep reading for our introduction to four main types of special needs trusts.

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4 Key Types of Special Needs Trusts for Your Child with Disabilities

Different kinds of trusts are funded in different ways, on different timelines, and they’re managed differently.

What’s right for your family depends on your individual situation.

These are the major options:

  1. A Trust You Fund as the Parents, through Your Estate In this plan, your child with special needs receives resources from your estate in the form of a trust after your death. Because it’s not your child’s own money—but your money—funding the trust, it’s called a “third-party” trust.
    Your passing is what triggers the activation of the trust.
  2. A Trust Funded by Multiple People This kind of trust can take contributions not just from you as the child’s parents, but grandparents, aunts, uncles, other family members, or anyone else. You can create this trust at any time. To come into existence, it doesn’t need to wait on the estate of a deceased funder. Like the kind of trust that you fund for your child through your estate, this is also a third-party trust.
  3. A Trust Funded by Money Belonging to Your Child Your child could have their own financial resources from several sources: gifts that were made directly to your child (and not to a trust), stocks and bonds in your child’s name, money from a personal injury settlement, money from a medical malpractice settlement, or more.
    These resources can go into a “first-party” trust—a trust that’s officially funded by your child for your child.
  4. A Trust Managed by a Non-Profit Organization This is called a “pooled trust” in which a non-profit organization manages the money on behalf of your child—combining it for investment purposes with contributions from other beneficiaries. After the end of your child’s life, any remaining funds go back to the organization to continue its mission.
    So eventually, this kind of trust becomes a form of support for a worthy cause, helping other people with disabilities.

Every type of trust comes with special legal considerations.

You or family members may need to weigh whether you want to contribute directly to a trust to benefit your child with special needs or make a gift directly to your child with disabilities—which can then go into a first-party trust (funded by your child’s assets).

And first-party trusts, for example, can prompt a bill from Medicaid for reimbursement of some costs after the beneficiary’s life.

A special needs planning lawyer can help you sort out what’s best for you.

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The Government Benefits that Special Needs Trusts Protect

A special needs trust may be an essential piece of your plan for supporting your child for the rest of their life, but it isn’t the only piece.

Remember, a major reason to establish a special needs trust, in addition to saving money for your child’s future, is ensuring that your child also has lifelong access to benefits for people with disabilities.

Trusts shelter financial resources available to your child from being counted against them in deciding whether they’re eligible for assistance for people with limited means.

With a special needs trust, your child can still receive benefits such as these:

  • Medicaid health care coverage
  • Supplemental Security Income (SSI) disability benefits, which provide monthly income assistance
  • Services providing home-based care, such Tax Equity and Fiscal Responsibility Act (TEFRA)/Katie Beckett programs & Home & Community Based Services (HCBS)

When you know you’ve done everything you can to put a plan in place to make sure your child with special needs will have what they need for the long-term, you can be more at peace.

The special needs planning lawyers at the Cuddy Law Firm can help you get there.

To get the process started setting up the right kind of special needs trust for your child, get in touch with us.

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