Aside from the third-party SNT’s, Medicaid and SSI now provides for the beneficiary to place his or her own funds in an SNT without having the funds counted as income or resources. 42 U.S.C. §1396p (d)(4). Since these are exceptions to the general SSI and Medicaid Trust rules that the funds are deemed available if the trustee has discretion, these SNT’s are also are referred to as “Medicaid exception trusts.”

For Medicaid in New York there are two “exception trusts” which contain the assets of a person with a disability: an individual “payback” trust established for a disabled person under the age of 65 and a “pooled” trust established for a disabled person of any age. 18 NYCRR § 360-4.5(b)(5). These exception trusts were first authorized by the Omnibus Budget Reconciliation Act of 1993, and are sometimes called OBRA ’93 supplemental needs trusts or Medicaid exception trusts. See 42 U.S.C. § 1396p(d)(4)(A) for individual trusts and 42 U.S.C. § 1396p(d)(4)(C) for pooled trusts. The beneficiary must be disabled as defined in the Social Security Act. For persons over 65 using the pooled trusts see discussion below in the section on Placing Income into an SNT. These trusts are exempt from the SSI and Medicaid rules regarding availability of income and resources. This rule applies even to self-settled trusts. 42 U.S.C. §1396p(c)(2)(B)(iv); N.Y. Soc. Serv. Law. §366 subd. 5(d)(3)(ii)(D); 18 N.Y.C.R.R. § 360-4.4(c)(2)(iii)(c)(iv).

As previously noted, separate provisions provide no penalty period of ineligibility for SSI will be imposed as a result of a transfer of assets into the trust for the “sole benefit” of the disabled person under the age of 65 or to a trust established solely for the benefit of the transferor’s disabled or blind child. For SSI see 42 U.S.C. § 1382 et seq; For Medicaid see N.Y. Soc. Serv. Law § 366 subd.

Individual Payback Trust

An individual “exception” trust must be: (1) established for the benefit of a disabled person under the age of 65; (2) established by a parent, grandparent, guardian, or court; (3) funded with the assets of the disabled beneficiary; and (4) require that Medicaid be paid back from the remaining balance, if any, upon the death of the beneficiary. 42 U.S.C. §1396p(d)(4)(A); N.Y. Soc. Serv. Law §366 subd. 2(b)(2)(iii).

Any transfer made into the trust by the disabled person after the age of 65 is treated as a transfer of assets requiring the imposition of a penalty period. 96 ADM-8. But see discussion below on transfers to a pooled trust by persons over 65.

The easiest way to create and fund a self-settled SNT is when a parent, or a grandparent is the “establisher” of the trust although the funds belong to or are the property of the disabled child or grandchild. Note, there is one additional requirement in a trust for an SSI recipient whose trust is created by a parent, grandparent, or guardian, in that the establisher must have actual legal authority to act with regard to the assets. A Power of Attorney from the SSI recipient/applicant to the parent or grandparent should meet this criterion. If the funds are from a settlement or recovery in a personal injury action and the defendant is under an incapacity (minor or incompetent) then the Supreme Court will review and approve the funding of a Supplemental Needs Trust as part of a compromise order. Courts may in addition be involved in the creation and/or funding of an SNT through Article 81 Guardianship because federal and state law permits Courts or guardians to be the “creator” of an

Many disabled persons do not have a living parent or grandparent; they have capacity and do not need a guardian; and yet they have a need to create and fund an SNT. This scenario may arise if the following ways: a deceased parent named a disabled child the beneficiary of an IRA, or the named beneficiary of an insurance policy. Given the stringent rules for SSI and the less severe but equally compelling mandates of the Medicaid program (which hold that a potential recipient is ineligible for
benefits if his or her liquid resources exceed $2000+/-), there may be the need for an expedited method of creating a self-settled SNT which would meet the guidelines of these programs.

New York State Supreme Courts have approved the creation of a SNT by petition in a special proceeding . The trust should be attached to the papers so that the court can review and ensure it is a “payback trust”. The Order to Show Cause and Petition are served on the local Department of Social Services. Typically the Social Service District will waive appearing but will send a letter to the court acquiescing to the creation and approval by the Court for the creation and funding of the Trust. A similar proceeding can be brought as a Miscellaneous Proceeding in the Surrogate’s Court.

The final step prior to execution and funding of the Trust is to submit to Court the order with a draft of the Trust attached.