Insight

Should a Third Party Special Needs Trust Be Revocable or Irrevocable?

Should a Third Party Special Needs Trust Be Revocable or Irrevocable?

Anthony J. Enea

Anthony J. Enea

November 5, 2019 09:51 AM

Should a Third Party Special Needs Trust Be Revocable or Irrevocable?

By: Anthony J. Enea, Esq.

Planning for a child, grandchild or loved one with special needs involves numerous personalized and unique considerations. While there are different types of special needs trusts (SNT’s), the overall objective of utilizing an SNT for a disabled person is to allow the disabled person to continue to receive (be eligible) for government benefits such as Medicaid and Supplemental Social Security Income (SSI) even though they are the beneficiary of the SNT.

Under federal law, a disabled person is defined as a person “unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months.” If one is receiving Medicaid, SSI or Social Security Disability (SSD), they are considered disabled. New York Estates, Powers and Trust Law requires that the SNT be utilized for the special and supplemental needs of a disabled person, and not their day to day living expenses such as food and shelter. The trustee of an SNT needs to avoid undertaking any action that jeopardizes the beneficiary’s eligibility for Medicaid and/or SSI.

Unlike a first party special needs trust (SNT) which must be irrevocable and is funded with the assets owned by the disabled beneficiary; a third party SNT can be revocable or irrevocable and is created and funded by someone other than the disabled person. Most often, it is created by a parent, grandparent or sibling. The most distinguishing feature of a third party SNT is that the source of the assets used to fund the trust are not those of the disabled person; and that upon the demise of the disabled person and the termination of the trust, the trust assets do not have to be paid back to the government to reimburse them for any benefits they paid.

A third party SNT can be “inter-vivos,” (a revocable or irrevocable living trust) or be a “testamentary” trust (created in a last will) or a sub trust effective after death. However, in all events the spouse of a disabled beneficiary or the parent of a minor disabled beneficiary cannot create and fund “inter-vivos” third party SNT and get the protections under New York Law with respect to government benefits.

Once the decision to create a third party SNT for the benefit of a child, grandchild, loved one or friend has been made, then the creator/grantor of the trust needs to decide whether said SNT will be a separate free standing living trust (revocable or irrevocable) or be a part of their last will and testament (a sub trust therein) for the benefit of the disabled beneficiary.

If the creator/grantor decides that the SNT be part of their last will (testamentary trust), then they have agreed that the trust will not be funded with any or all of their estate assets until after their demise and their last will has been admitted to probate. Generally, the administration of their estate would need to be completed and the executor of their last will has distributed the specified estate assets to the SNT created in the last will. Selecting this option does not allow for any funding or utilization of the assets in the third party SNT until after the creator/grantor’s death.

In most instances I have been involved in, the creator/grantor of the third party SNT has elected to utilize a free-standing irrevocable third party SNT. If the trust is irrevocable other individuals, such as grandparents, close friends, siblings, and other family members, can be encouraged to make contributions to the SNT during their lifetime. They could do so without worrying that they made contributions to a trust that could later be revoked and that their contributions upon the trust revocation could potentially be distributed to someone other than the disabled person.

However, when utilizing an irrevocable third party SNT both the creator/grantor and others making contributions to the trust will need to understand that once the contribution is made, it can not be returned back to them.

The irrevocability of the trust gives to the individuals making the contributions to the trust the peace of mind that their original goal of helping the disabled beneficiary will be fulfilled. The individuals funding the SNT can also experience the disabled person reaping the benefits from the SNT during their lifetime. This of course is also possible if the third party SNT is revocable.

If the creator/grantor of the trust does not want and/or does not believe anyone else will be making contributions to the trust, then they may opt to utilize a revocable third party SNT. The revocable third party SNT would give them the option of amending the terms of the trust as well as making contributions to the trust and if wish to do so return the assets transferred to the trust to themselves.

A revocable third party SNT gives the creator/grantor flexibility. This flexibility could be of great value if there are significant changes in the beneficiary’s conditions and in particular their needs. For example, if the beneficiary is receiving benefits that to a great extent provide for all of their needs presently and it is anticipated that this will be true in the future, the grantor and the trustees could possibly reduce the assets in the trust to a level that is more suitable to the anticipated and current needs of the beneficiary.

In some instances, because of their concern about a disabled loved one, families tend to over fund the third party SNT. In some cases, the likelihood of the beneficiary ever utilizing all of the assets in the trust is minimal. This results in assets in the trust not being utilized, thus, depriving not only the creator/grantor of the funds, but, possibly other family members until the demise of the disabled beneficiary. The revocable third party SNT allows the grantors to remedy this issue.

In conclusion, the decision of whether to utilize a revocable or irrevocable third party SNT requires the consideration of numerous factors. Doing so with the assistance of an experienced elder law and special needs attorney is advised.

Anthony J. Enea, Esq. is the managing member of Enea, Scanlan & Sirignano, LLP with offices in White Plains and Somers, NY. Mr. Enea is chair of the New York State Bar Association’s Senior Lawyers Section. He was named Best Lawyers’ 2019 Trusts and Estates “Lawyer of the Year” in White Plains and Westchester County’s Leading Elder Care Attorney at the Above the Bar Awards.

Related Articles

Is It Time for You to Have the Long-Term Care Planning Talk With Your Parents?


by Anthony J. Enea

How should you talk to your parents about long-term care options? Estate planning can make for a difficult conversation, but wills and trusts are necessary documents for anyone growing older.

Estate Planning for Parents Guide

What's The Difference Between Estates and Trusts?


by Best Lawyers

What is the difference between an estate and a trust? Read below to learn more about estates and trusts, including what sets them apart from each other.

Animated figure stands confused on arrow pointing two ways

The Benefits of Charitable Giving in New York Estate Planning


by Best Lawyers

In this article, Best Lawyers breaks down the advantages and disadvantages of factoring in charitable donations when estate planning in New York state.

Animated hand giving a gift with bow on top

The New PPE


by Jennifer Stavros

How to plan your pandemic preparedness estate—all from the safety of home.

Planning Your Digital Estate Plan

Protecting Your Legacy With Estate Planning


by Tripp Wiles

You're careful with your finances; do you still need asset protection?

Protecting Your Legacy With Estate Planning

A Texas-Sized Reputation


by Justin Smulison

Dan Sciano’s proven record of success and leadership has made him a highly sought-after plaintiff’s litigator in the Lone Star State.

Dan Sciano: Expert Civil Litigator

Most Americans Lack a Power of Attorney for Assets


by George M. Riter

Only 25 percent of American households have estate planning documents in place. A Power of Attorney for Assets will secure your financial affairs should you be unable to do so yourself.

Power of Attorney for Assets Documents

Ellen G. Makofsky, 2018 "Lawyer of the Year" for Elder Law


by Nicole Ortiz

Ellen G. Makofsky of Makofsky and Associates was named 2018 "Lawyer of the Year" in Long Island for Elder Law.

Ellen G. Makofsky LOTY

Anthony J. Enea, 2018 "Lawyer of the Year" for Elder Law


by Nicole Ortiz

Anthony J. Enea of Enea, Scanlan & Sirignano, LLP was named 2018 "Lawyer of the Year" in White Plains for Elder Law.

Anthony J. Enea LOTY

Protect Your Pets: Westchester Elder Law Attorney Anthony Enea Explains How to Provide for Pets in an Estate Plan


by Anthony J. Enea

Along with pet ownership comes the responsibility of ensuring your companion animal's care and well-being - even if that extends beyond your lifetime.

Elder Law - Pets Estate Plan

Trending Articles

Announcing the 2023 The Best Lawyers in America Honorees


by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

Announcing the 2022 Best Lawyers® in the United States


by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

2021 Best Lawyers: The Global Issue


by Best Lawyers

The 2021 Global Issue features top legal talent from the most recent editions of Best Lawyers and Best Lawyers: Ones to Watch worldwide.

2021 Best Lawyers: The Global Issue

The U.S. Best Lawyers Voting Season Is Open


by Best Lawyers

The voting season for the 31st edition of The Best Lawyers in America® and the 5th edition of Best Lawyers: Ones to Watch® in America is officially underway, and we are offering some helpful advice to this year’s voters.

Golden figures of people standing on blue surface connected by white lines

How To Find A Pro Bono Lawyer


by Best Lawyers

Best Lawyers dives into the vital role pro bono lawyers play in ensuring access to justice for all and the transformative impact they have on communities.

Hands joined around a table with phone, paper, pen and glasses

What the Courts Say About Recording in the Classroom


by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?

How Palworld Is Testing the Limits of Nintendo’s Legal Power


by Gregory Sirico

Many are calling the new game Palworld “Pokémon GO with guns,” noting the games striking similarities. Experts speculate how Nintendo could take legal action.

Animated figures with guns stand on top of creatures

The Best Lawyers in Australia™ 2024 Launch


by Best Lawyers

Best Lawyers is excited to announce The Best Lawyers in Australia™ for 2023, including the top lawyers and law firms from Australia.

Australian Parliament beside water at sunset

Best Lawyers: Ones to Watch in America for 2023


by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

Inflation Escalation


by Ashley S. Wagner

Inflation and rising costs are at the forefront of everyone’s mind as we enter 2023. The current volatile market makes it more important than ever to understand the rent escalation clauses in current and future commercial lease agreements.

Suited figure in front of rising market and inflated balloon

A Celebration of Excellence: The Best Lawyers in Canada 2024 Awards


by Best Lawyers

As we embark on the 18th edition of The Best Lawyers in Canada™, we are excited to highlight excellence and top legal talent across the country.

Abstract image of red and white Canada flag in triangles

8 Different Types of Criminal Defenses in Law


by Best Lawyers

Learn about the different types of criminal defenses available in law, including innocence, self-defense, insanity and more. Protect your rights today.

Silver handcuffs laying on finger printed papers

Wage and Overtime Laws for Truck Drivers


by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

The Upcycle Conundrum


by Karen Kreider Gaunt

Laudable or litigious? What you need to know about potential copyright and trademark infringement when repurposing products.

Repurposed Products and Copyright Infringemen

Choosing a Title Company: What a Seller Should Expect


by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

The 2024 Best Lawyers in Spain™


by Best Lawyers

Best Lawyers is honored to announce the 16th edition of The Best Lawyers in Spain™ and the third edition of Best Lawyers: Ones to Watch in Spain™ for 2024.

Tall buildings and rushing traffic against clouds and sun in sky