The Supplemental Needs Trust (SNT) is a useful tool and comes in two (2) separate guises:
- Third Party Funded
- First Party or Self-Funded
Both trust types hold property for the exclusive use and benefit of a disabled beneficiary. Property held in the SNT is considered separate and distinct from the property of the disabled beneficiary.
This distinction is critical because these assets will not be considered when determining the available government benefits for a disabled beneficiary. The SNT assets can supply luxuries above and beyond whatever government assistance the disabled beneficiary would otherwise qualify for.
For example, a disabled beneficiary could have significant assets held for them and still qualify for federal, state, and local benefits such as:
- Section 8 Housing
- Supplemental Security Income (SSI)
- Supplemental Nutrition Assistance Program (SNAP)
- Medicaid (both “In Community” and “In Facility”)
The New York State statute governing these trusts is found in Estates Powers and Trust Law (EPTL) Section 7-1.12.
Key Considerations for SNTs
SNTs require careful drafting to ensure that the beneficiary does not have control over the SNT assets or include provisions that would violate the statute.
The main limitation is that the income and principal held in the trust can only supplement—not supplant—government benefits.
Example: If a government program will provide a hospital-style bed, the trustee should be prohibited from purchasing one instead.
Many families with disabled children consider leaving the disabled child out of the estate and giving a sibling a double share, with the direction to care for the disabled beneficiary. However, the SNT often serves as a safer and more effective option.
Consider the Risks: If the sibling entrusted with these funds has a car accident, dies, or becomes incapacitated, the parents’ intentions may be thwarted. The SNT mitigates these risks.
First Party or Self-Settled SNTs
Under EPTL Section 7-1.12, First Party or Self-Settled SNTs allow a disabled beneficiary to use their own assets—such as a lawsuit award or inheritance—to fund the trust.
This type of SNT can:
- Protect the disabled beneficiary’s assets from being spent down before qualifying for government benefits.
- Provide for luxuries not covered by government programs.
Historical Limitation: Previously, a family member had to create the trust. This created difficulties for disabled individuals without willing or available family members.
Fairness in Medicaid Supplemental Needs Trusts Act: Signed into law by President Obama, this act allows a disabled individual to establish their own First Party or Self-Settled SNT.
Repayment Requirement: One major limitation of First Party or Self-Settled SNTs is that upon the disabled beneficiary’s death, any remaining trust assets must first be used to repay the value of government benefits expended on their care.
Takeaways
The SNT is a valuable tool. In both Third Party and First Party SNTs, trust property can be used by the trustee for the disabled beneficiary’s:
- Physical and mental needs
- Education
- Visitation by family members
- Travel
- Entertainment
- Home modifications (or modifications to a home-like residence) to improve suitability for the beneficiary
These expenditures must not duplicate benefits available through government programs. Proper drafting is crucial to ensure compliance and maximize the trust’s effectiveness.
Members of Congress Request Delay in Enforcement of Federal CTA (Beneficial Ownership Reports)
On November 5, 2024, an assortment of congressional members (44 consisting of both Republicans and Democrats) delivered a letter to Treasury Secretary Janet Yellen requesting a delay in enforcing Financial Crimes Enforcement Network’s (FinCEN) beneficial ownership information reporting requirements (commonly referred to as CTA Requirements).
Key Points:
- CTA reporting requirements apply to more than 33.6 million small businesses, but fewer than 15% of those covered have made their submissions.
- Legislators argued that compliance rates are low due to poor notice given to the small business community.
- Congressional members asserted that the legislative intent was to allow a reasonable period for implementation (suggested as two years), but FinCEN provided only a one-year deadline, which lawmakers called “an unrealistically short window.”
New York State “Puppy Mill Pipeline Act” Goes into Effect December 15, 2024
Signed into law by Governor Hochul two years ago, the Puppy Mill Pipeline Act takes effect on December 15, 2024. After this date, it will be illegal for pet stores in New York State to sell dogs, cats, and rabbits.
Penalties:
- Licensed pet dealers who violate the ban face penalties of up to $1,000 per offense.
Challenges:
- Pet store owners argue the law will bankrupt their businesses and drive buyers to unregulated online markets.
- On November 20, 2024, several pet store owners filed a lawsuit claiming the law will force them out of business without evidence of improved animal welfare.
Note: Pet stores may still partner with registered nonprofit animal rescue organizations to showcase adoptable dogs, cats, and rabbits.
New York LLC Transparency Act (NYLLCTA): Next Compliance Requirement
The New York LLC Transparency Act (NYLLCTA) was enacted on December 22, 2023, requiring disclosure of beneficial ownership for every LLC formed or operating in New York.
Timeline:
- Compliance begins January 1, 2026, for LLCs formed on or after that date.
- All other LLCs must comply by January 1, 2027.
Key Points:
- Similar to the Federal CTA, but NYLLCTA requires annual updates.
- Exempt entities must file an attestation of exemption under penalty of perjury.
Department of Labor Overtime Exemptions Rule Struck Down Nationwide
On November 15, 2024, a Texas federal court struck down a Department of Labor rule that raised the minimum salary required for employees classified as “exempt” under the Fair Labor Standards Act.
Key Changes:
- Effective November 15, 2024, the old salary level test is reinstated:
- Executive, administrative, and professional employees: $684/week ($35,568 annually).
- Highly compensated employees: $107,432 annually (with at least $684 per week).
Proposed Changes to Section 174 R&D Credits
The IRS is expected to propose new regulations on §174 research and experimental expenditures in early 2025.
Source: Scott Vance, IRS associate chief counsel, speaking at a Tax Executives Institute conference on November 4, 2024.
In addition to being a co-founder of the LIAFPN, Larry Scherer has a strong background in Trust & Estates and Elder Law and serves as Managing Member of Scherer & Pudell, PLLC, a transactional law firm in Garden City, NY. He can be reached at (516) 747-7007. Connect on LinkedIn |
