So you or someone you know just received a settlement payment in connection with a recent car accident or work related injury. You or someone that is a disabled individual is receiving Medicaid benefits, among other things.

What is a there to do, if anything about the settlement payment? What is this “trust” that everyone mentions as a well know but mysterious magic wand?

Let’s demystify First Party Special Needs Trusts!

What is “first party”? It means you establish a trust for yourself using your funds (i.e. settlement payment, your inheritance that you just received or lottery winnings).

This is different from the “third party” special needs trusts established for a benefit of a disabled beneficiary. The third party trusts will not be discussed in this blog.

What is special needs trust? The federal Medicaid Statute 42 U.S.C. Section 1396 p(d)(4)(A) lays the foundation of the first party special needs trusts. It states that such trusts have to match four criteria:

1. The trust must be established by a parent, grandparent, guardian, a court or the individual with a disability.

2. The disability definition must match the definition of the Social Security Act.

3. The beneficiary must be under 65 years of age at the time the trust is funded.

4. The trust must provide that at the time of the disabled beneficiary’s death, State Medicaid programs be repaid for the care provided during the life of the beneficiary.

What next? If you create a trust for yourself, using your own assets and the trust matches the criteria set above, the trust will receive the protections under the Federal Medicaid and SSI law. The assets of the trust will be disregarded in determining resource eligibility and income rules of Medicaid and SSI programs will determine how your trust distributions affect benefit eligibility and amounts.

In NY a typical special needs trust would require that trustee evaluate availability of public benefits to the beneficiary before making a discretionary distribution. Trustees have to be strongly aware of the impact a distribution from the trust may have upon various programs that beneficiary is entitled to receive (or may be already receiving). There is a lot of uncertainty under the laws of the State of New York as to how trustees of special needs trust have to exercise discretion with respect to distributions.

If you need help with the creation of a special needs trust for yourself or a loved one or if you are a trustee appointed to manage a special needs trust for a family member or a complete stranger, call us and we will guide you through this difficult and convoluted process.


Request your Free Consultation or Call 212.596.7039 Today!


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