The United States Census Bureau reported that of the 53.9 million school-age children (ages 5 to 17) in the U.S. non-institutionalized population, about 2.8 million were reported to have a disability in 2010. Beyond these figures, even more children are affected by diagnosis which may not rise to the level of a disability, but may present challenges for a child later in life that may lead to the need for that child to receive government assistance. Caring for the needs of a disabled child can be a daunting task and while parents of children with disabilities are often eager to rise to the challenge, planning for the future is of the utmost importance when faced with the prospect of a child outliving the caregivers. One tool that is used to protect the financial future of a disabled child is a third-party Supplemental Needs Trust (SNT), to be funded by assets of parties other than the child.
The role of a SNT is to protect assets for the benefit of a person with a severe and chronic or persistent disability, to provide for their non-basic needs such as food, housing and medical care, which may be covered by government benefits or assistances through all levels of government. However, these funds can be earmarked for other needs that the disabled child may have in the future such as education, travel, entertainment and medical care not provided by government assistance. If properly drafted, a SNT will permit funds to be safeguarded for the future of the disabled child to ensure that the child’s quality of life is maintained following the caregiver’s death.
Considering a SNT
When considering if a SNT is the right option for you, it is vital to ensure that the trust prepared meets the criteria required by New York State Law, such as:
1. Existence of a Disability – The beneficiary of the SNT must be suffering from a mental illness, developmental disability or other physical or mental impairment, whose disability is or is expected to cause the need for long-term health, mental health, developmental disabilities, social or other related services.
2. Trust Intent – The SNT must clearly state that the trust is seeking to supplement, not supplant, impair or diminish, government benefits or assistance for which the beneficiary may otherwise be eligible or which the beneficiary is already receiving, except to the extent that the Trustee appointed may distribute funds to third parties for the beneficiary’s needs in certain circumstances where the Trustee believes doing so will be in the best interests of the beneficiary.
3. No Beneficiary Authority – The beneficiary may not have the authority to assign, encumber, direct, distribute or authorize distributions from the SNT.
Preparing a SNT
When preparing a SNT, it is also important to consider who will serve as the Trustee and Successor Trustees. While parents usually like to serve as Trustee, the selection of Successor Trustees is often a difficult process which should involve selecting candidates and confirming with those individuals that they agree to serve before they are appointed. While family members and friends may be possible Successor Trustees, for SNTs funded in excess of several million dollars, corporate Trustees may be selected to ensure that the trust assets are properly protected and managed.
Financial Advisor
After a SNT is created, a good practice is to meet with a financial advisor to review the current and expected future financial needs of the disabled child to determine how many funds should be transferred into the SNT. The financial advisor will examine numerous factors including review of the individual’s medical needs, amount of government benefits and assistance, housing needs, and capacity for employment. Once a determination is made as to the optimum amount of assets needed for the needs of the beneficiary, the SNT may be funded from a number of sources including direct deposits of funds, life insurance proceeds, testamentary distributions from friends and family members, and from military benefits. Usually the creation of a SNT is accompanied by the estate planning of the parents or other caregivers of the disabled child, who ensure that the entire estate plan works together to protect the disabled child.
For a caregiver of a disabled child who has labored to protect that child through their entire life, the prospect of aging and reaching a point where they can no longer care for that child can be frightening. However, with the preparation of a SNT, some of those concerns may be alleviated through the appointment of a Trustee who will have the funds needed to care for that child in the future. In the words of Winston Churchill, “Let our advance worrying become advance thinking and planning.”
James L. Hyer, Esq., a New York State admitted attorney serving on the House of Delegates of the New York State Bar Association, Board of Directors of the Westchester Bar Association and Partner of Bashian & Farber, LLP. bashianfarberlaw.com.
