Families across New York — from Manhattan and Brooklyn to Long Island, Westchester, the Hudson Valley, and Upstate — face a deceptively simple-sounding question: how do I leave money to a child or relative with disabilities without doing more harm than good? The instinct is to leave them a generous inheritance outright, or to fold them into a standard living trust along with everyone else. In New York, both of those well-meaning choices can quietly disqualify the person from Medicaid and Supplemental Security Income (SSI) — the very benefits that pay for their housing, care, and medical needs.
This page takes a comparison-driven approach. Rather than describing the Special Needs Trust (SNT) in isolation, it weighs it directly against the other tools New Yorkers reach for — an outright gift, a revocable living trust, and a standard irrevocable trust — so you can see exactly where the SNT wins and where another structure fits better. For a broader map of every trust type, start with our trusts overview.
The core problem: means-tested benefits
Medicaid and SSI are means-tested. Eligibility depends on how few resources the beneficiary owns. A modest inheritance — even tens of thousands of dollars — counted as the beneficiary’s own resource can push them over the limit and cut off coverage until the money is spent down. For a person with a lifelong disability, that is often a catastrophe: the inheritance evaporates on care that Medicaid would otherwise have covered, and nothing is left to enhance their quality of life.
A Supplemental / Special Needs Trust under New York Estates, Powers and Trusts Law (EPTL) § 7-1.12 solves this. Because assets are held by the trust for the beneficiary’s benefit — not owned by the beneficiary — they are not counted against means-tested eligibility, so long as the trust is drafted and administered correctly. The trust pays for “supplemental” needs that government benefits do not: therapies, education, travel, technology, a companion, recreation, and dignity-enhancing extras — without replacing the benefits themselves.
Four options, side by side
Here is how the SNT compares to the alternatives a New York family typically considers.
| Option | Protects Medicaid / SSI? | Beneficiary controls funds? | Avoids probate? | Typical use |
|---|---|---|---|---|
| Outright gift / inheritance | No — counted as the beneficiary’s resource | Yes | No (passes through will) | The wrong tool for a disabled beneficiary |
| Revocable living trust | No — assets still treated as available; grantor keeps control | No (trustee controls) | Yes | Probate avoidance, privacy, incapacity — not benefits protection |
| Standard irrevocable trust | Sometimes, but not designed for it | No | Yes | Estate-tax reduction, asset protection, Medicaid look-back planning |
| Special Needs Trust (EPTL 7-1.12) | Yes — purpose-built | No (trustee has discretion) | Yes | Preserving benefits for a disabled beneficiary |
The takeaway: only the SNT is designed to keep the beneficiary eligible. A revocable living trust is an excellent probate-avoidance and incapacity tool, but it does nothing to shield benefits, because the grantor retains control and the assets remain available. A standard irrevocable trust can protect assets and reduce estate tax — but it is not engineered around the strict supplemental-distribution rules that keep Medicaid and SSI intact.
Why “just leave it to a sibling” fails
A common workaround is to leave the disabled person’s share to a trusted sibling who “promises” to use it for them. This is legally fragile. The money becomes the sibling’s — exposed to the sibling’s divorce, creditors, lawsuits, and death — and the disabled person has no enforceable right to it. The SNT replaces a fragile promise with an enforceable fiduciary obligation.
Third-party vs. first-party SNTs
Not all special needs trusts are the same. The two principal categories turn on whose money funds the trust:
- Third-party SNT. Funded with someone else’s assets — most often a parent’s or grandparent’s. This is the centerpiece of good estate planning for a family with a disabled member. Because the beneficiary never owned the assets, a third-party SNT generally has no Medicaid payback requirement: whatever remains at the beneficiary’s death can pass to other family members you name.
- First-party (self-settled) SNT. Funded with the disabled person’s own money — for example, a personal-injury settlement or a direct inheritance that has already vested. These are permitted but come with a Medicaid payback provision: at the beneficiary’s death, the state is reimbursed for benefits paid before any remainder passes to heirs.
The planning lesson is decisive: direct your gift into a third-party SNT in advance, rather than leaving money to the disabled person outright and being forced into a payback first-party trust later. Parents drafting their own wills and trusts should make sure every relative’s bequest that might otherwise flow to the disabled beneficiary is redirected into the SNT.
The trustee: the engine that makes it work
An SNT only protects benefits if it is administered correctly. The trustee holds discretionary power and must never give the beneficiary cash or pay for items in a way that counts as income for SSI purposes. In New York, the trustee is bound by the same fiduciary duties as any other trustee:
- The prudent-investor standard under EPTL Article 11-A, requiring careful, diversified investment;
- The duty of loyalty, putting the beneficiary’s interests first; and
- The duty to account to the beneficiaries.
Choosing the right trustee — and structuring ongoing oversight — is where many SNTs succeed or fail. Sound trust administration is not optional housekeeping; it is the difference between a trust that preserves benefits and one that inadvertently triggers a loss of coverage. New York’s SCPA and EPTL set out the commission schedules that govern what a trustee may be paid; we counsel families on selecting between family members, professionals, and institutional trustees.
How the SNT fits into the rest of your plan
A special needs trust rarely stands alone. It usually sits inside a broader plan:
- Probate and privacy. Like other trusts, a properly funded SNT keeps assets out of Surrogate’s Court. A will, by contrast, is public and must be probated — see trust vs. will for the full comparison.
- Estate tax. New York’s 2026 estate-tax landscape matters for larger estates. The basic exclusion amount is $7,350,000, with a notorious “cliff” at 105% — $7,717,500. An estate that exceeds the cliff loses the entire exemption, not just the excess. A standard revocable trust does not reduce this tax (assets remain in the taxable estate); families above the threshold may pair an SNT with irrevocable trust planning to reduce exposure.
- Medicaid look-back. Irrevocable Medicaid-planning trusts are subject to New York’s five-year look-back. A third-party SNT funded at your death is not a transfer by the beneficiary, so it sidesteps that particular trap — another reason the third-party structure is so powerful.
All New York trusts here are governed by EPTL Article 7. The SNT’s specific authority is EPTL § 7-1.12.
Comparison summary: which tool, when?
- Choose an SNT when the beneficiary receives, or may someday need, Medicaid or SSI. Nothing else preserves eligibility.
- Choose a revocable living trust for probate avoidance, privacy, and incapacity management — for beneficiaries who are not benefits-dependent.
- Choose a standard irrevocable trust when the goal is estate-tax reduction or asset protection and benefits are not in play.
- Never rely on an outright gift or an informal promise to a relative for a disabled loved one.
Frequently asked questions
Does a Special Needs Trust make my child lose their Medicaid or SSI?
No — that is the entire point. A properly drafted third-party SNT under EPTL § 7-1.12 holds assets for the beneficiary without those assets being counted as the beneficiary’s resource, so means-tested benefits like Medicaid and SSI remain intact. Distributions must be made carefully by the trustee to stay within the rules.
Can I just use my revocable living trust instead?
No. A revocable living trust avoids probate and manages incapacity, but it does not protect benefits. Because you keep control and can revoke it, the assets are treated as available, which can disqualify a benefits-dependent beneficiary. The SNT is purpose-built for that protection.
What is the difference between a first-party and a third-party SNT?
A third-party SNT is funded with someone else’s money (usually a parent’s) and generally has no Medicaid payback. A first-party SNT is funded with the disabled person’s own assets — such as a lawsuit settlement — and requires Medicaid reimbursement from any remainder at death. Planning ahead lets you use the more favorable third-party structure.
Who should serve as trustee of a New York SNT?
The trustee must follow New York’s prudent-investor standard (EPTL Article 11-A), the duty of loyalty, and the duty to account, while making only benefit-safe distributions. Many families choose a professional or institutional co-trustee for the technical compliance, paired with a family member who understands the beneficiary’s needs.
Will a Special Needs Trust reduce my estate tax?
Not by itself. A revocable trust keeps assets in your taxable estate. With New York’s 2026 exclusion of $7,350,000 and a cliff at $7,717,500, larger estates may combine an SNT with separate irrevocable-trust planning to address estate tax.
Talk to a New York special needs planning attorney
Every family’s situation is different, and the line between protecting and disqualifying a beneficiary is thin. Morgan Legal Group, led by attorney Russel Morgan, Esq., helps families throughout New York State design and administer special needs trusts that fit the rest of their plan. Schedule a consultation to discuss your family’s needs.
Further reading from Morgan Legal Group: how trusts work in New York.