A special needs trust (also called a supplemental needs trust, or SNT) in New York is a legal arrangement that holds money and property for a person with a disability without disqualifying that person from means-tested government benefits such as Medicaid and Supplemental Security Income (SSI). It is authorized by EPTL 7-1.12 of New York’s Estates, Powers and Trusts Law, and it is the single most important planning tool for any family that wants to leave an inheritance to a loved one with special needs while protecting the public benefits that loved one relies on every day. The short answer to the title question: a special needs trust is a way to provide extra care and comfort for a disabled beneficiary on top of, not instead of, the benefits they already receive.
Below, Morgan Legal Group answers the questions New Yorkers ask us most often about these trusts.
Why Do You Need a Special Needs Trust at All?
Most government benefit programs are means-tested. To qualify for Medicaid or SSI, a person generally cannot own more than a very small amount of countable resources. If a disabled person inherits money directly, receives a lawsuit settlement, or is named as a beneficiary on a life insurance policy, that windfall can push them over the resource limit and cut off their benefits entirely until the money is spent down.
A special needs trust solves this problem. Because the assets are owned by the trust rather than the individual, they are not counted as the beneficiary’s personal resources. The beneficiary keeps Medicaid and SSI, and the trust funds are available to pay for the extra things those programs do not cover.
Key point: A special needs trust is designed to supplement, not replace, government benefits. That is why it is also called a “supplemental needs trust.”
To understand where the SNT fits among other planning tools, it helps to review our trusts overview.
What Can a Special Needs Trust Pay For?
The trustee can use trust funds for nearly anything that improves the beneficiary’s quality of life as long as it is not something Medicaid or SSI already provides. Common permissible expenses include:
- Personal care attendants beyond what Medicaid covers
- Education, tutoring, and vocational training
- Recreation, hobbies, travel, and entertainment
- Electronics, computers, and assistive technology
- Therapies, medical equipment, and dental work not covered by Medicaid
- A specially equipped vehicle and transportation costs
- Furniture, household goods, and home modifications
What the trustee generally should not do is hand cash directly to the beneficiary or pay for basic food and shelter without careful planning, because those distributions can reduce the SSI benefit. A knowledgeable trustee, guided by counsel, keeps distributions on the right side of the line.
What Are the Two Main Types of Special Needs Trusts in New York?
New York recognizes two broad categories under EPTL 7-1.12. The difference comes down to whose money funds the trust.
| Feature | Third-Party SNT | First-Party (Self-Settled) SNT |
|---|---|---|
| Whose assets fund it | Parents, grandparents, or other relatives | The disabled person’s own money (e.g., a settlement or inheritance) |
| Typical use | Estate planning for a disabled child | Preserving benefits after a windfall or lawsuit |
| Medicaid “payback” on death | No payback required — remainder can go to other heirs | Payback required — Medicaid is reimbursed first |
| When it is created | During the parents’ lifetime or at death | While the beneficiary is alive |
A third-party SNT is the cornerstone of family estate planning. Parents create it, fund it with their own assets, and name the disabled child as beneficiary. Because the child never owned the money, no Medicaid payback applies, and the parents can direct any leftover funds to their other children.
A first-party SNT is used when the disabled person already has assets of their own. These trusts must include a provision repaying Medicaid for benefits received before the remaining funds pass to other heirs. Getting this structure right requires careful drafting; our irrevocable trust page explains why most special needs trusts are built to be irrevocable.
How Is a Special Needs Trust Different From a Revocable Living Trust?
A revocable living trust is a flexible, everyday planning tool: the grantor keeps full control, can amend or revoke it at any time, and uses it primarily to avoid probate, preserve privacy, and manage incapacity. It does not save estate tax, and it does not protect benefits, because the grantor still controls the assets. You can read more on our revocable living trust page.
A special needs trust is fundamentally different. It is usually irrevocable and is built around one goal: keeping the beneficiary eligible for Medicaid and SSI. Control rests with an independent trustee, and the beneficiary cannot demand the money. That loss of control is exactly what protects the benefits.
Who Should Serve as Trustee?
Choosing a trustee is one of the most important decisions a family makes. The trustee controls every distribution and must understand benefit rules well enough to avoid accidentally disqualifying the beneficiary.
Under New York law, every trustee owes strict fiduciary duties, including:
- The prudent-investor standard for managing and investing trust assets (EPTL Article 11-A)
- A duty of loyalty to act solely in the beneficiary’s interest
- A duty to account to the beneficiaries
Families often name a trusted relative, a professional fiduciary, a bank trust department, or a pooled-trust nonprofit. Many choose co-trustees — a family member who knows the beneficiary’s needs paired with a professional who knows the rules. Ongoing management is its own discipline; see our trust administration page for what the role involves.
Does a Special Needs Trust Help With New York Estate Tax?
For most families, the SNT is a benefits tool, not a tax tool. But estate planning never happens in a vacuum, so it is worth knowing where New York’s estate tax stands.
For 2026, New York’s basic exclusion amount is $7,350,000. New York also has a notorious “cliff”: if an estate exceeds 105% of the exclusion — $7,717,500 — the estate loses the entire exemption and is taxed on every dollar from the first. Families with larger estates often pair a special needs trust with additional planning, sometimes using an irrevocable trust for estate-tax reduction subject to the five-year Medicaid look-back. Coordinating these tools is where experienced counsel earns its keep.
Special Needs Trust vs. Leaving Money in a Will
Some families assume they can simply leave an inheritance to a disabled child in a will. This is almost always a mistake. A gift through a will passes directly to the beneficiary, immediately counts as a resource, and can wipe out Medicaid and SSI. A will also must be probated in the Surrogate’s Court, which is public and slower than trust administration. By contrast, a trust avoids probate and stays private. Our trust vs. will page walks through these differences in detail.
Frequently Asked Questions
Will my child lose Medicaid if I leave them money in a special needs trust?
No. When the trust is drafted correctly under EPTL 7-1.12, the assets are not counted as your child’s personal resources, so Medicaid and SSI eligibility is preserved.
Can I be the trustee of my child’s special needs trust?
A parent can serve, but it is often wiser to name a professional or a co-trustee. The trustee must understand benefit rules to avoid distributions that reduce SSI, and an independent trustee adds protection and continuity.
What happens to the money when the beneficiary passes away?
It depends on the type of trust. A third-party SNT has no Medicaid payback, so the remainder can go to other family members. A first-party SNT must reimburse Medicaid before any remainder is distributed.
Is a special needs trust the same as an irrevocable trust?
Most special needs trusts are irrevocable, but “irrevocable trust” is a broader category that also includes trusts used for estate-tax reduction and asset protection. The SNT is a specialized form built specifically to protect public benefits.
Talk to Morgan Legal Group About Protecting Your Loved One
A special needs trust is too important to get wrong. A single misdrafted clause or a poorly timed distribution can cost a disabled person the benefits that sustain them. Russel Morgan, Esq. and the team at Morgan Legal Group help New York families across the state design, fund, and administer special needs trusts that protect benefits and provide lasting security.
Schedule your consultation today: https://calendly.com/russel-morgan/30min
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