What Is a Special Needs Trust in New York? (EPTL 7-1.12)

A special needs trust (often called a supplemental needs trust, or SNT) is a New York trust, authorized by EPTL 7-1.12, that holds money and property for the benefit of a person with a disability without disqualifying that person from means-tested public benefits such as Medicaid and Supplemental Security Income (SSI). In plain terms: it lets you provide for a disabled child, spouse, sibling, or other loved one while preserving the government benefits they rely on for healthcare, housing, and daily living. Because the assets are held by a trustee and used only for “supplemental” needs the beneficiary cannot get from public programs, the funds are not counted as the beneficiary’s own resources.

At Morgan Legal Group, this is one of the most important and emotionally significant tools we draft for New York families. Below, Russel Morgan, Esq. answers the questions we hear most often.

Why Do New York Families Need a Special Needs Trust?

Means-tested benefits in New York have strict asset and income limits. If a disabled person simply receives an inheritance, a personal-injury settlement, or a well-meaning cash gift, those funds can push them over the resource limit and cause them to lose Medicaid and SSI. Losing Medicaid is often catastrophic, because Medicaid frequently funds the medical care, therapies, and long-term services a disabled person needs.

A properly drafted SNT solves this problem. The trustee, not the beneficiary, controls the money, and the trust language restricts distributions to supplemental needs — things public benefits do not cover.

A special needs trust can pay for items such as:

• Education, tutoring, and job training
• Travel, recreation, and entertainment
• Personal care attendants beyond what Medicaid provides
• Furniture, electronics, and adaptive equipment
• Therapies and medical care not covered by Medicaid
• Vehicle purchase, maintenance, and transportation

The trustee should generally avoid giving the beneficiary cash directly or paying for food and shelter in ways that reduce SSI, since those distributions can affect benefit eligibility.

What Are the Two Main Types of Special Needs Trusts?

New York families typically use one of two structures. The right choice depends on whose money funds the trust.

Feature	Third-Party SNT	First-Party (Self-Settled) SNT
Source of funds	Parents, grandparents, others	The beneficiary’s own assets (e.g., inheritance, settlement)
Common use	Estate planning for a disabled loved one	Protecting a settlement or inheritance the beneficiary already received
Medicaid “payback” at death	No payback required	Yes — Medicaid must be repaid from remaining funds
Who creates it	Family member, by will or living trust	Beneficiary, parent, grandparent, guardian, or court
Typical beneficiary age	Any age	Must generally be under age 65 when funded

The key distinction: a third-party SNT is funded with someone else’s money and can pass any leftover assets to other family members at the beneficiary’s death. A first-party SNT is funded with the disabled person’s own assets and must include a Medicaid payback provision, meaning the State is reimbursed from whatever remains before the balance goes to other heirs.

How Does a Special Needs Trust Fit With My Other Estate Planning?

A special needs trust rarely stands alone. It is usually one piece of a broader estate plan governed by EPTL Article 7. Many parents establish a third-party SNT inside their revocable living trust or will, so that a disabled child’s inheritance flows automatically into the protective trust rather than directly to the child.

It is worth understanding how the SNT compares to the other trusts we draft:

• A revocable living trust lets you keep control during life, avoids probate, and manages your affairs if you become incapacitated — but it does not save estate tax, because the assets remain in your taxable estate.
• An irrevocable trust generally cannot be changed and is used for estate-tax reduction, asset protection, and Medicaid planning. Medicaid planning with an irrevocable trust is subject to the five-year look-back.
• A special needs trust has one focused job: protecting benefits for a disabled beneficiary.

For a fuller comparison of how these structures work together, see our trusts overview.

What Are the Trustee’s Duties in a New York SNT?

Choosing — and being — a trustee is a serious responsibility. Under New York law, a trustee owes fiduciary duties to the beneficiary, including:

1. The prudent-investor standard under EPTL Article 11-A, requiring careful, diversified, and prudent management of trust assets.
2. The duty of loyalty, meaning the trustee must act solely in the beneficiary’s interest and avoid self-dealing.
3. The duty to account, requiring the trustee to keep accurate records and report to beneficiaries.

For a special needs trust, the trustee carries the additional burden of understanding benefit rules, so that distributions help the beneficiary without accidentally disqualifying them. A misstep can cost the beneficiary their Medicaid or SSI. Because of this complexity, many families name a professional or institutional co-trustee. Trustee commissions in New York are governed by statutory SCPA and EPTL commission schedules — we explain those during planning. Learn more about ongoing duties on our trust administration page.

Special Needs Trust vs. a Will: Which Do I Need?

This is not an either/or question — most families need both. A will must be probated in the Surrogate’s Court, becomes part of the public record, and simply directs where your assets go. If you leave assets outright to a disabled person through a will, you may inadvertently destroy their benefits.

A trust, by contrast, avoids probate and stays private. By routing a disabled loved one’s inheritance into a special needs trust, you keep the gift out of the public record and out of harm’s way. For a deeper look at this choice, read our guide on trust vs. will.

A Note on New York Estate Tax in 2026

While a special needs trust is primarily about benefit protection, larger estates should also keep New York’s estate tax in mind. In 2026, the New York basic exclusion amount is $7,350,000. New York imposes a notorious “cliff”: an estate exceeding 105% of the exclusion — $7,717,500 — loses the entire exemption and is taxed on the full value, not just the excess. Families near this threshold should coordinate special needs planning with broader tax strategies.

Frequently Asked Questions

Will a special needs trust make my child lose their Medicaid or SSI?
No — that is the entire point. When properly drafted under EPTL 7-1.12 and administered correctly, the trust assets are not counted as the beneficiary’s resources, so eligibility for means-tested benefits is preserved.

Can I set up a special needs trust for a child who already received an inheritance or settlement?
Yes. That situation calls for a first-party (self-settled) SNT, which must include a Medicaid payback provision and generally must be established before the beneficiary turns 65.

What happens to the money left in the trust when the beneficiary passes away?
It depends on the type. In a third-party SNT, any remaining funds can pass to other family members you name. In a first-party SNT, Medicaid must be repaid first, and only the balance goes to your named heirs.

Who should serve as trustee?
Choose someone trustworthy and detail-oriented who understands fiduciary duties and benefit rules. Many New York families appoint a professional or institutional co-trustee to share the burden and ensure compliance.

Protect Your Loved One — Talk With Morgan Legal Group

A special needs trust is one of the most meaningful gifts you can give a disabled loved one: financial support that does not cost them the benefits they depend on. But the rules are unforgiving, and a single drafting or administration error can have lasting consequences. Russel Morgan, Esq. and the team at Morgan Legal Group draft and administer New York special needs trusts statewide.

Schedule your 30-minute consultation with Russel Morgan, Esq. and let us help you protect the people who matter most.