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

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Presenting the 2025 Best Lawyers Editions in Chile, Colombia, Peru and Puerto Rico


by Jennifer Verta

Celebrating top legal professionals in South America and the Caribbean.

Flags of Puerto Rico, Chile, Colombia, and Peru, representing countries featured in the Best Lawyers

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Unveiling the 2025 Best Lawyers Editions in Brazil, Mexico, Portugal and South Africa


by Jennifer Verta

Best Lawyers celebrates the finest in law, reaffirming its commitment to the global legal community.

Flags of Brazil, Mexico, Portugal and South Africa, representing Best Lawyers countries

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Tampa Appeals Court ‘Sends Clear Message,” Ensuring School Tax Referendum Stays on Ballot


by Gregory Sirico

Hillsborough County's tax referendum is back on the 2024 ballot, promising $177 million for schools and empowering residents to decide the future of education.

Graduation cap in air surrounded by pencils and money

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background

The Human Cost


by Justin Smulison

2 new EU laws aim to reshape global business by enforcing ethical supply chains, focusing on human rights and sustainability

Worker wearing hat stands in field carrying equipemtn

Beyond the Billables


by Michele M. Jochner

In a recently conducted, comprehensive study, data reveals a plethora of hidden realities that parents working full-time in the legal industry face every day.

Women in business attire pushing stroller takes a phone call