The Listen to Lawrence Letter: Special Needs Trusts – funding and filing

September 29, 2021
Dear Clients and Friends,
Special Needs Trusts are usually set up by parents and/or grandparents for a child or grandchild that has disabilities in order to provide for their needs without jeopardizing their government benefits. As time goes by, you want to make sure you’ve done all you can so that it works as you intended it to. The answer to this question will give you peace of mind.
We included the provision for a Special Needs Trust for our Disabled Son when completing our Will(s) in your office several years ago. Must there be a financial repository created to accommodate this “Trust” or are the “Articles” spelled out in our Will Documents, actionable upon our demise, sufficient for the Trust requirements to be funded? Is the “Trust” actually filed as such with the State of New York?
Many of our clients that have a child or grandchild with disabilities create a “special needs trust” or SNT for their benefit. What is an SNT you ask? I am so glad you asked.
Many people with disabilities require government assistance under the SSI (Supplemental Security Income) and Medicaid programs. These welfare programs require poverty as a prerequisite for eligibility. If your child or grandchild were to receive an inheritance from you it may jeopardize their eligibility. Instead, it is often appropriate for you to leave the inheritance in a trust for their benefit…a trust that contains certain language that allows the trustee maximum flexibility to meet all of the beneficiary’s needs while not affecting their eligibility for SSI and Medicaid. This is what an SNT is all about.
This type of SNT (one funded with someone else’s money or what is called a 3rd party trust) can be created while you are alive or may spring to life after your death. Yes, you can create the SNT now, while you are alive. The trust will be in existence now, and most likely will be funded now. Alternatively, you can put all of the language creating the trust in your Will or another trust (revocable or irrevocable) with the trust coming into actual existence upon your death. If the language is in your last will and testament, then we will have to probate your will in order for the SNT to come to life. Whether we create the trust now or later depends on many factors and there is no one size fits all approach. This requires a personal discussion.
In the case above, it appears that the SNT is in the “Articles” in their will. Nothing needs to be done now as the trust is not yet in existence.  Remember, a will is a worthless piece of paper while you are alive…it first requires your death to set it in motion. After your death and after the will is probated, the SNT will come into existence, receive a tax ID number, and then the accounts can be titled in the name of the trust. The SNT will be on record with the probate court. If the SNT is in a revocable or irrevocable trust, it will again come to life upon your death, without probate though. Many people with children with disabilities opt to avoid probate and go the route of a revocable or irrevocable trust, although this is not critical and often overkill. A lot of factors go into this decision. In any event, if we avoid probate, the trust will not be filed in court or with the state, but will again need its own tax ID number.
I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.
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Stay safe!
Until next time…
peace, health and happiness,
Lawrence Eric Davidow