Special Needs Trust in New York: A Plain-English Guide for 2026

If you care for a child, sibling, spouse, or parent with a disability, you have probably worried about one hard question: what happens to them when you are gone? You want to leave money to make their life easier — but you may have heard that an inheritance can actually do harm by cutting off the government benefits they depend on. That fear is real, and in New York there is a well-established legal tool built to solve it: the special needs trust (also called a supplemental needs trust, or SNT).

This page is written for people who are new to the topic. There is no jargon you cannot follow, and no assumption that you already understand trust law. By the end, you will know what an SNT is, why it matters, how New York law treats it, and what your next step looks like. Morgan Legal Group, led by attorney Russel Morgan, Esq., prepares these trusts for families across the entire state — New York City, Long Island, Westchester, the Hudson Valley, and Upstate.

The Problem an SNT Solves

Many people with disabilities rely on means-tested public benefits. The two most common are:

• Medicaid — pays for medical care, long-term services, and supports.
• Supplemental Security Income (SSI) — provides a monthly cash benefit.

“Means-tested” means eligibility depends on how few assets and how little income a person has. In general, a person can lose these benefits if they hold more than a small amount of countable resources. So if a loving grandparent leaves $75,000 outright to a disabled grandchild, that gift can disqualify the grandchild from Medicaid and SSI overnight — and the inheritance may simply be spent down on care the government would otherwise have provided. The family’s generosity backfires.

A special needs trust is the answer. Instead of giving money to the person, you give it to a trust that holds and manages the money for the person. Because the funds are owned by the trust — not by the beneficiary — they generally do not count against Medicaid or SSI eligibility. The beneficiary keeps their benefits and gains a pool of money for the extra comforts those benefits do not cover.

How New York Law Treats the SNT

In New York, trusts are governed by the Estates, Powers and Trusts Law (EPTL), Article 7. The supplemental needs trust has its own home in the statute: EPTL 7-1.12. This is the section that recognizes and authorizes a trust designed to supplement, not supplant, government benefits for a person with a severe and chronic disability.

That phrase — supplement, not supplant — is the heart of an SNT. The trust is meant to pay for things above and beyond what Medicaid and SSI provide. It is not meant to replace those benefits or to be handed out as cash the beneficiary could use for basic food and shelter (which can reduce SSI). A trust drafted correctly under EPTL 7-1.12 walks this line carefully, which is exactly why the document’s wording matters so much.

What an SNT Can Pay For

A well-run special needs trust improves quality of life. Common, permissible uses include:

• Therapies, treatments, and care not covered by Medicaid
• Adaptive equipment, a specially equipped vehicle, or home modifications
• Education, training, and vocational programs
• Travel, recreation, hobbies, and entertainment
• Personal-care attendants beyond what benefits supply
• Electronics, furniture, and other personal comforts

The trustee makes these payments on the beneficiary’s behalf — typically paying providers directly rather than handing cash to the beneficiary — to protect benefit eligibility.

The Two Main Types of Special Needs Trust

Families are often surprised that there is more than one kind. The right type depends on whose money funds the trust.

Feature	Third-Party SNT	First-Party SNT
Funded with	Someone else’s assets (parents, grandparents)	The beneficiary’s own assets (e.g., a lawsuit settlement or inheritance)
Typical use	Parents planning ahead for a disabled child	Beneficiary received money directly and needs to protect benefits
Medicaid payback	No payback requirement	Yes — Medicaid must be repaid from what remains at death
Best set up	As part of an estate plan, often through a will or living trust	When the beneficiary suddenly receives countable assets

The key takeaway: a third-party SNT, created and funded by parents or grandparents, generally leaves no Medicaid payback, and whatever remains can pass to other family members. A first-party SNT, funded with the disabled person’s own money, generally must repay Medicaid for benefits received. Choosing the correct structure is one of the most valuable things a New York estate planning attorney does for you.

The Trustee: Who Manages the Money

Every special needs trust needs a trustee — the person or institution responsible for managing the funds and making distributions. This is a serious, ongoing job, and New York law holds trustees to real legal standards. A trustee owes:

• A duty of loyalty — acting solely in the beneficiary’s interest, never their own.
• The prudent-investor standard under EPTL Article 11-A — investing the trust assets with reasonable care, skill, and caution.
• A duty to account — keeping clear records and reporting to beneficiaries.

For an SNT, the trustee also carries the extra responsibility of understanding benefit rules so that a well-meaning payment does not accidentally reduce the beneficiary’s Medicaid or SSI. Many families name a knowledgeable individual, a professional trustee, or a pooled-trust organization. New York’s SCPA and EPTL set out commission schedules that govern how a trustee may be compensated; the specifics depend on the trust and the trustee.

Where the SNT Fits Among Other Trusts

If you are new to estate planning, it helps to see how a special needs trust compares to the other trusts you may have heard about. You can dive deeper on our trusts overview page, but here is the short version.

• A revocable living trust lets you keep full control — you can amend or revoke it anytime. Its strengths are avoiding probate, privacy, and managing your affairs if you become incapacitated. It does not reduce estate tax, because the assets stay in your taxable estate.
• An irrevocable trust generally cannot be changed once created. People use it for estate-tax reduction, asset protection, and Medicaid planning — though Medicaid planning is subject to a 5-year look-back.
• A special needs trust has a narrower, vital mission: preserving means-tested benefits for a disabled beneficiary under EPTL 7-1.12.

An SNT is frequently built as part of a larger plan. For example, parents might create a third-party SNT inside their living trust or their will, so it springs to life and is funded when they pass away. Ongoing management is handled through trust administration.

Trust vs. Will: Why the Distinction Matters Here

Some families assume they can simply write a few lines in a will leaving money “for the care of” their disabled child. That well-intentioned approach can be a trap. As we explain on our trust vs. will page:

• A will is a public document that must be probated in the Surrogate’s Court.
• A trust avoids probate and stays private.

For a special needs beneficiary, the trust structure is not just about privacy — it is about control and protection. A properly drafted SNT (often funded through a will or living trust) ensures the money is held and spent the right way for the beneficiary’s entire lifetime, rather than landing in their hands as a disqualifying lump sum.

A Quick Word on New York Estate Tax

Special needs planning is usually about benefits, not taxes — but if your estate is large, the two intersect. For 2026, New York’s estate-tax basic exclusion is $7,350,000. New York also has a notorious “cliff.” If your taxable estate exceeds 105% of the exclusion — $7,717,500 — you lose the entire exemption, and the whole estate becomes taxable, not just the amount over the line. Families near that threshold often combine special needs planning with tax-focused strategies, which may involve an irrevocable trust. We will tell you honestly whether this applies to you.

Frequently Asked Questions

Will a special needs trust cause my child to lose Medicaid or SSI?

No — that is the entire point of the trust. Because the assets are owned by the trust rather than by your child, a properly drafted SNT under EPTL 7-1.12 generally does not count against means-tested benefits. The trust supplements those benefits with comforts they do not cover.

Who can set up a special needs trust in New York?

A parent, grandparent, or other family member can create a third-party SNT funded with their own assets, often as part of a will or living trust. A first-party SNT is funded with the disabled person’s own money — such as a settlement or inheritance — and carries a Medicaid payback requirement. The right type depends on whose money funds it.

What can the trust money actually be spent on?

On things that improve quality of life beyond what benefits provide — therapies, equipment, education, travel, recreation, personal care, and comforts. The trustee generally pays providers directly rather than giving cash to the beneficiary, to protect benefit eligibility.

Does the money have to be paid back to Medicaid?

It depends on the type. A third-party SNT funded by parents or grandparents generally has no Medicaid payback, and the remainder can pass to other loved ones. A first-party SNT funded with the beneficiary’s own assets generally must repay Medicaid from what remains at death.

Can I change a special needs trust later?

That depends on how it is structured. A third-party SNT created within a revocable living trust can typically be adjusted while you are alive, since you keep control of the living trust. An irrevocable arrangement generally cannot be changed. We will design the plan to fit your family’s needs and explain exactly what flexibility you retain.

Take the Next Step

Protecting a loved one with a disability is one of the most important things an estate plan can do — and it is too important to get wrong with a do-it-yourself form. Russel Morgan, Esq., and the team at Morgan Legal Group help New York families across NYC, Long Island, Westchester, the Hudson Valley, and Upstate build special needs trusts that safeguard benefits and provide lasting peace of mind.

Schedule your consultation with Russel Morgan, Esq. and let us show you how an SNT can protect the person you love.