A special needs trust (also called a supplemental needs trust, or SNT) in New York is a legal arrangement, authorized by EPTL 7-1.12, that holds assets for the benefit of a person with a disability without disqualifying that person from means-tested government benefits such as Medicaid and Supplemental Security Income (SSI). Because the trust — not the beneficiary — owns the assets, the funds do not count against the strict income and resource limits those programs impose. The trustee can then use the money to pay for things that improve the beneficiary’s quality of life on top of what public benefits cover. In short: an SNT lets a disabled loved one inherit money or receive a settlement while still keeping the benefits they rely on.
This guide takes a practical, checklist-style approach. We explain how an SNT works under New York law, the two main types, what the trust money can and cannot pay for, and — most importantly — the concrete next steps to take.
Why a Special Needs Trust Matters in New York
Means-tested benefits have very low asset limits. If a disabled person receives an inheritance, a personal-injury settlement, or a well-meaning gift directly, those funds can push them over the limit and suspend or terminate their Medicaid and SSI. That can mean losing health coverage, residential care, and a monthly income check.
An SNT solves this problem. Under EPTL 7-1.12, properly drafted trust assets are treated as “supplemental” — they supplement but do not replace government benefits. The beneficiary never has direct access to or legal ownership of the principal; the trustee controls every distribution.
The Two Main Types of Special Needs Trusts
New York recognizes two broad categories, distinguished by whose money funds the trust.
| Feature | First-Party SNT | Third-Party SNT |
|---|---|---|
| Source of funds | The disabled person’s own assets (e.g., a settlement or inheritance) | A family member’s assets (parent, grandparent) |
| Typical use | Personal-injury recovery, back inheritance | Estate planning for a child or relative |
| Medicaid “payback” | Yes — Medicaid must be reimbursed from what remains at death | No — remainder can pass to other family members |
| Who creates it | Often court-established or set up under federal/state authority | The family member who provides the funds |
The key practical difference is the Medicaid payback requirement. A first-party trust (funded with the beneficiary’s own money) must repay the state for Medicaid benefits provided once the beneficiary dies. A third-party trust (funded by someone else’s money) carries no payback — so the remaining funds can go to siblings or other heirs.
Learn more on our special needs trust service page, and see how an SNT fits within our broader trusts overview.
What an SNT Can — and Cannot — Pay For
The trustee should use distributions for goods and services that enhance the beneficiary’s life beyond basic support:
- Medical and dental care not covered by Medicaid
- Therapies, rehabilitation, and specialized equipment
- Education, vocational training, and tutoring
- Travel, recreation, hobbies, and entertainment
- Personal-care attendants and companion services
- Furniture, electronics, and home modifications
Distributions that the trustee must handle carefully (because they can reduce SSI or count as income):
- Cash given directly to the beneficiary
- Food and shelter expenses (rent, mortgage, utilities, groceries)
This is why an experienced trustee — guided by counsel — is essential. Improper distributions can inadvertently reduce the very benefits the trust was created to protect.
How an SNT Fits Within New York Trust Law
Special needs trusts live inside EPTL Article 7, the same body of New York law that governs revocable and irrevocable trusts. A few related points worth understanding:
- A revocable living trust lets a grantor keep control and amend or revoke at any time. Its benefits are avoiding probate, privacy, and incapacity management — but it does not save estate tax, because the assets remain in the taxable estate.
- An irrevocable trust generally cannot be amended and is used for estate-tax reduction, asset protection, and Medicaid planning (subject to the five-year look-back). Many third-party SNTs are structured as irrevocable trusts.
- Whatever the trust type, the trustee owes fiduciary duties: the prudent-investor standard (EPTL Article 11-A), a duty of loyalty, and a duty to account to the beneficiaries.
Because an SNT must remain effective for the beneficiary’s entire lifetime, ongoing administration matters. Our trust administration team helps trustees make compliant distributions, keep records, and account properly.
A Note on New York Estate Tax
For larger estates, planning around the SNT should account for the New York estate tax. In 2026, the basic exclusion amount is $7,350,000. New York imposes a “cliff”: estates valued at more than 105% of the exclusion — $7,717,500 — lose the entire exemption, not just the excess. Coordinating an SNT with your overall plan can help avoid stumbling over that cliff.
Your Special Needs Trust Checklist: Next Steps
Use this practical checklist to move from “I should do this” to “it’s done”:
- Confirm eligibility. Verify that your intended beneficiary has a disability and receives (or will need) means-tested benefits such as Medicaid or SSI.
- Choose the right type. First-party (the beneficiary’s own funds, with Medicaid payback) or third-party (your funds, no payback).
- Identify the funding source. Inheritance, life insurance, a settlement, or a lifetime gift — each has different timing and tax implications.
- Select a trustee. Pick someone trustworthy and detail-oriented, or a professional fiduciary. Remember the prudent-investor and accounting duties under EPTL Article 11-A.
- Coordinate your estate plan. Make sure your will, beneficiary designations, and any other trusts point assets to the SNT — never directly to the disabled person.
- Draft the trust with counsel. SNTs must satisfy strict EPTL 7-1.12 requirements; a drafting error can defeat the entire purpose.
- Fund and administer it. Re-title or direct assets into the trust, then administer distributions carefully to preserve benefits.
Trying to decide between trust structures? Our guide on trust vs. will explains why a trust avoids probate and stays private, while a will is public and must be probated in the Surrogate’s Court.
Frequently Asked Questions
Will a special needs trust make my loved one lose Medicaid or SSI?
No — that is precisely what a properly drafted SNT under EPTL 7-1.12 prevents. Because the trust owns the assets and the beneficiary cannot demand the principal, the funds are not counted against Medicaid or SSI resource limits.
Does the trust have to repay Medicaid when the beneficiary dies?
It depends on the type. A first-party SNT (funded with the beneficiary’s own money) must reimburse New York’s Medicaid program from any remaining funds. A third-party SNT (funded by a family member) has no payback requirement.
Can the beneficiary receive cash directly from the trust?
Generally no. Direct cash distributions can reduce SSI and may be treated as income. The trustee should pay third parties (vendors, providers) for goods and services instead.
Who can serve as trustee of a New York SNT?
A trusted family member, a friend, a professional fiduciary, or a corporate trustee. Whoever serves must meet the prudent-investor standard under EPTL Article 11-A and account to the beneficiaries.
Talk to a New York Special Needs Trust Attorney
Protecting a disabled loved one’s benefits while still providing for their future is one of the most important things you can do — and it must be done correctly under EPTL 7-1.12. The attorneys at Morgan Legal Group, led by Russel Morgan, Esq., draft and administer special needs trusts across New York State.
Schedule your consultation with Russel Morgan, Esq. to build a plan that protects both your loved one’s benefits and their quality of life.
Further reading from Morgan Legal Group: the revocable living trust explained.