A special needs trust (also called a supplemental needs trust, or SNT) is a New York trust, authorized under EPTL 7-1.12, that holds assets for a person with a disability without disqualifying them from means-tested government benefits like Medicaid and Supplemental Security Income (SSI). In plain terms: it lets your family provide for a disabled child, spouse, sibling, or parent for the rest of their life — paying for things government programs do not cover — while keeping the benefits that program eligibility depends on. For families across New York State, the SNT is the single most important tool for protecting a vulnerable loved one without forcing an impossible choice between an inheritance and essential care.
This guide explains, from a family’s perspective, how a special needs trust works in New York, the difference between the two main types, and how to set one up correctly so it actually does its job.
Why Families Need a Special Needs Trust
Means-tested benefits have strict asset and income limits. If a disabled person owns assets above those thresholds — or receives a direct inheritance, a gift from a grandparent, or a personal-injury settlement — they can lose Medicaid and SSI overnight. That is devastating, because for many disabled New Yorkers, Medicaid pays for the home care, residential placement, and medical treatment that no family budget could absorb.
The cruel irony is that well-meaning relatives often cause the harm. A grandmother who leaves $50,000 outright to a disabled grandchild in her will can accidentally terminate that grandchild’s benefits. A special needs trust solves this. Money placed in a properly drafted SNT is not counted as the beneficiary’s resource, so benefits continue, and the trust funds the extras that make life dignified and full.
What an SNT Can Pay For
A special needs trust is designed to supplement, not replace, government benefits. Typical permitted expenses include:
- Therapies, treatments, and medical equipment not covered by Medicaid
- Education, tutoring, and vocational training
- Travel, vacations, and recreation
- Personal care attendants and companions
- Computers, phones, and assistive technology
- Furniture, clothing, and household goods
- Entertainment, hobbies, and quality-of-life purchases
The trustee generally should avoid giving cash directly to the beneficiary or paying for food and shelter in ways that reduce SSI — these rules are technical, which is exactly why an experienced trustee and attorney matter.
The Two Types of Special Needs Trusts in New York
Families usually encounter one of two structures. Choosing correctly depends on whose money funds the trust.
| Feature | Third-Party SNT | First-Party (Self-Settled) SNT |
|---|---|---|
| Funded with | A family member’s money (parent, grandparent) | The disabled person’s own money (e.g., a settlement or inheritance) |
| Who creates it | Parents, grandparents, others | The individual, a parent/grandparent, guardian, or court |
| Medicaid payback at death? | No — remainder passes to family | Yes — Medicaid must be reimbursed first |
| Best for | Estate planning for a disabled heir | Protecting assets the disabled person already received |
| Authority | EPTL 7-1.12 | EPTL 7-1.12 |
Third-party SNTs are the planning tool of choice for parents and grandparents. Because the money never belonged to the disabled beneficiary, there is no Medicaid payback requirement — whatever remains when the beneficiary passes away can go to siblings or other family members you choose.
First-party SNTs are used when the disabled person already owns the assets, such as a lawsuit recovery or a direct inheritance. These require a Medicaid payback provision: at the beneficiary’s death, the state is reimbursed for benefits paid before any remainder goes to family.
For most families doing proactive planning, the third-party SNT — built into your overall estate plan — is the right path. Learn more on our special needs trust service page.
How the SNT Fits Into Your Family Estate Plan
A special needs trust is not a standalone document you sign and forget. It works best woven into your broader plan:
- Coordinate your will and beneficiary designations. Never leave assets directly to a disabled loved one. Instead, direct that share into the SNT.
- Tell relatives. Grandparents and others should leave gifts to the trust, not the person. One uncoordinated bequest can undo years of planning.
- Choose the right trustee. The trustee manages investments and decides what to pay for, all while protecting benefit eligibility.
- Decide on a remainder plan. With a third-party SNT, you name who receives what is left.
Because SNTs are usually irrevocable, they are drafted as part of a deliberate strategy. To understand how irrevocable trusts behave generally — including their role in asset protection and Medicaid planning subject to the five-year look-back — see our irrevocable trust overview. If you want a broader picture of how New York trusts work together, start with our trusts overview.
The Trustee’s Duties Under New York Law
The trustee of an SNT carries serious legal responsibilities. Under New York law, a trustee must follow the prudent investor standard (EPTL Article 11-A), observe a strict duty of loyalty to the beneficiary, and a duty to account to beneficiaries. For an SNT, the trustee also bears the practical burden of understanding which distributions help the beneficiary and which could jeopardize Medicaid or SSI.
New York’s EPTL and SCPA set out commission schedules that govern how trustees are compensated, so families should discuss this in advance. Because the stakes are so high — a single careless distribution can suspend benefits — many families choose a professional or co-trustee. Sound ongoing oversight is part of why we offer dedicated trust administration support.
Special Needs Trust vs. Other Tools
Some families wonder whether a simple will or a revocable trust could do the same job. They cannot.
- A will is public, must be probated in the Surrogate’s Court, and leaving assets through it directly to a disabled person triggers benefit loss.
- A revocable living trust keeps you in control and avoids probate, but it does not protect benefits, because the assets remain available to you (and would be counted).
- Only a properly structured SNT keeps assets out of the benefit-eligibility calculation.
A special needs trust avoids probate and is private — like trusts generally — while adding the benefit-protection layer. To weigh the public-versus-private and probate trade-offs more broadly, read our trust vs. will comparison.
A Note on New York Estate Tax
While the primary purpose of an SNT is benefit protection, larger family estates should also keep New York’s estate tax in view. For 2026, the New York basic exclusion amount is $7,350,000. New York imposes a “cliff”: estates exceeding 105% of the exclusion — $7,717,500 — lose the entire exemption, not just the excess. Families with significant assets should integrate benefit planning and tax planning together so one goal does not undermine the other.
Frequently Asked Questions
Will an inheritance in a special needs trust make my child lose Medicaid?
No. Assets properly held in a New York SNT under EPTL 7-1.12 are not counted as the beneficiary’s own resource, so Medicaid and SSI eligibility are preserved — provided the trustee follows the distribution rules.
What is the difference between a first-party and third-party SNT?
A third-party SNT is funded with a family member’s money and has no Medicaid payback, so the remainder can pass to other relatives. A first-party SNT is funded with the disabled person’s own assets and must repay Medicaid at death before any remainder is distributed.
Can I change a special needs trust later?
Most SNTs are irrevocable, so they generally cannot be freely amended. That is why careful drafting up front — coordinated with your full estate plan — is essential.
Who should serve as trustee?
Someone who understands both prudent investing under EPTL Article 11-A and the benefit rules. Many families use a trusted relative as co-trustee alongside a professional to avoid costly mistakes.
Protect Your Loved One — Talk to Morgan Legal Group
A special needs trust is one of the most caring things you can do for a vulnerable family member — but only when it is drafted and administered correctly under New York law. At Morgan Legal Group, Russel Morgan, Esq. and our team help families across New York State build SNTs that protect benefits, preserve resources, and give you peace of mind.
Schedule your 30-minute consultation with Russel Morgan, Esq. and let us help you protect the people who matter most.
Further reading from Morgan Legal Group: how trusts work in New York.