Special Needs Trusts: Protecting a Loved One in Brooklyn

For a Brooklyn family caring for a child or relative with disabilities, the hardest planning problem is this: leaving money the usual way can disqualify your loved one from the very benefits they depend on. A modest inheritance or a personal-injury settlement can push someone over the asset limit for Medicaid or SSI overnight. New York’s answer is the special needs trust — but there are two kinds, and choosing correctly is essential.

Why an Outright Gift Backfires

Leaving assets directly to a person with disabilities — or to a sibling “to hold for them” — usually does more harm than good. Direct ownership can terminate needs-based benefits, and an informal arrangement with a sibling offers no legal protection and can unravel in a divorce, lawsuit, or family dispute. A properly drafted special needs trust under New York EPTL § 7-1.12 holds the assets so they supplement, rather than replace, public benefits.

Option 1: The Third-Party Special Needs Trust

This is the trust Brooklyn parents and grandparents typically create with their own money to benefit a loved one. Because the funds never belonged to the beneficiary, there is no Medicaid “payback” requirement — when the beneficiary dies, whatever remains can pass to other family members you name. It can be funded now or through your will or living trust at death, and it can hold gifts from any relative who wants to help. For long-term family planning, this is usually the centerpiece.

Option 2: The First-Party Special Needs Trust

This trust is used when the assets belong to the person with disabilities — for example, a personal-injury settlement from an accident in Brooklyn, or an inheritance that came directly to them. It also preserves benefits, but New York and federal rules require a Medicaid “payback” provision: at the beneficiary’s death, the state is reimbursed from what remains before anything passes to others. It is the right tool when the money is already the beneficiary’s, even though its payback feature makes it less flexible than a third-party trust.

What the Trust Can Pay For

Either way, the trustee can use funds for needs that benefits don’t cover — therapies, education, technology, travel, a caregiver, recreation — enriching life in Brooklyn without jeopardizing eligibility. The key is that the trustee, not the beneficiary, controls distributions, and the trust avoids giving the beneficiary direct cash for food and shelter in ways that reduce benefits.

Choosing Between Them

The deciding question is simple: whose money is it? Family money for a loved one calls for a third-party trust with no payback. The beneficiary’s own settlement or inheritance calls for a first-party trust. Many Brooklyn families end up with a third-party trust as the long-term vehicle and add a first-party trust only if the individual later receives funds of their own.

Consult a New York Attorney

Special needs trusts must be drafted precisely to satisfy EPTL § 7-1.12 and benefit rules — a small error can cost the very protection you intend. Work with a New York estate planning attorney experienced with Brooklyn families to choose and draft the right trust for your loved one.