N.Y. Estates, Powers & Trusts Law § 7-1.12: Supplemental needs trusts established for persons with severe

§ 7-1.12 Supplemental needs trusts established for persons with severe

and chronic or persistent disabilities

(a) Definitions: When used in this section, unless otherwise expressly

stated or unless the context otherwise requires:

(1) "Developmental disability" means developmental disability as

defined in subdivision twenty-two of section 1.03 of the mental hygiene

law.

(2) "Government benefits or assistance" means any program of benefits

or assistance which is intended to provide or pay for support,

maintenance or health care and which is established or administered, in

whole or in part, by any federal, state, county, city or other

governmental entity.

(3) "Mental illness" means mental illness as defined in subdivision

twenty of section 1.03 of the mental hygiene law.

(4) "Person with a severe and chronic or persistent disability" means

a person (i) with mental illness, developmental disability, or other

physical or mental impairment;

(ii) whose disability is expected to, or does, give rise to a

long-term need for specialized health, mental health, developmental

disabilities, social or other related services; and

(iii) who may need to rely on government benefits or assistance.

(5) "Supplemental needs trust" means a discretionary trust established

for the benefit of a person with a severe and chronic or persistent

disability (the "beneficiary") which conforms to all of the following

criteria:

(i) The trust document clearly evidences the creator's intent to

supplement, not supplant, impair or diminish, government benefits or

assistance for which the beneficiary may otherwise be eligible or which

the beneficiary may be receiving, except as provided in clause (ii) of

this subparagraph;

(ii) The trust document prohibits the trustee from expending or

distributing trust assets in any way which may supplant, impair or

diminish government benefits or assistance for which the beneficiary may

otherwise be eligible or which the beneficiary may be receiving;

provided, however, that the trustee may be authorized to make such

distributions to third parties to meet the beneficiary's needs for food,

clothing, shelter or health care but only if the trustee determines (A)

that the beneficiary's basic needs will be better met if such

distribution is made, and (B) that it is in the beneficiary's best

interests to suffer the consequent effect, if any, on the beneficiary's

eligibility for or receipt of government benefits or assistance;

(iii) The beneficiary does not have the power to assign, encumber,

direct, distribute or authorize distributions from the trust;

(iv) If an inter vivos trust, the creator of the trust is a person or

entity other than the beneficiary or the beneficiary's spouse; and

(v) Notwithstanding subparagraph (iv) of this paragraph, the

beneficiary of a supplemental needs trust may be the creator of the

trust if such trust meets the requirements of subparagraph two of

paragraph (b) of subdivision two of section three hundred sixty-six of

the social services law and of the regulations implementing such

clauses. Provided, however, that if the trust is funded with the

proceeds of retroactive payments made as a result of a court action and

due the beneficiary under the federal supplemental security income

program, as established under title XVI of the federal social security

act, the creation of a supplemental needs trust by the beneficiary under

this subparagraph shall not impair nor limit any right under applicable

law of a representative payee to receive reimbursement out of such

proceeds for expenses incurred on behalf of the beneficiary pending the

determination of the beneficiary's eligibility for such federal

supplemental security income program, nor any right under applicable law

of any state or local governmental entity which provided the beneficiary

with interim assistance pending the determination of the beneficiary's

eligibility for such federal supplemental security income program to be

repaid out of such proceeds for the amount of such interim assistance.

(6) A "beneficiary" means a person with a severe and chronic or

persistent disability who is a beneficiary of a supplemental needs

trust.

(b) A supplemental needs trust shall be construed in accordance with

the following:

(1) It shall be presumed that the creator of the trust intended that

neither principal nor income be used to pay for any expense which would

otherwise be paid by government benefits or assistance for which the

beneficiary might otherwise be eligible or which the beneficiary might

be receiving, notwithstanding any authority the trustee may have to make

distributions for food, clothing, shelter or health care as provided in

clause (ii) of subparagraph five of paragraph (a) of this section;

(2) Section 7-1.6 of this article shall not be applicable to the

extent that the application or possible application of that section

would reduce or eliminate the beneficiary's entitlement to government

benefits or assistance;

(3) Neither principal nor income held in trust shall be deemed an

available resource to the beneficiary under any program of government

benefits or assistance; however, actual distributions from the trust may

be considered to be income or resources of the beneficiary to the extent

provided by the terms of any such program;

(4) The trustee of the trust shall not be deemed to be holding assets

for the benefit of the beneficiary for purposes of section 43.03 of the

mental hygiene law or section one hundred four of the social services

law; and

(5) If the trust provides the trustee with the authority to make

distributions for food, clothing, shelter or health care as provided in

clause (ii) of subparagraph five of paragraph (a) of this section, and

if the mere existence of that authority would, under the terms of any

program of government benefits or assistance, result in the

beneficiary's loss of government benefits or assistance, regardless of

whether such authority were actually exercised, then:

(i) if the trust instrument expressly provides, such provision shall

be null and void and the trustee's authority to make such distributions

shall cease and shall be limited as otherwise provided; or

(ii) the trust shall no longer be treated as a supplemental needs

trust under this section and the trust shall be construed, and the trust

assets considered, without regard to the provisions of this section.

(c) (1) Paragraph (b) of this section shall not apply to the extent

that the trust is funded, directly or indirectly, by the beneficiary,

except as provided in clause (v) of subparagraph five of paragraph (a)

of this section, by someone with a legal obligation of support to the

beneficiary, or by someone with another financial obligation to the

beneficiary to the extent of such obligation, at the time the

beneficiary is receiving or applying to receive:

(i) Government benefits or assistance for which an income and resource

calculation is made; or

(ii) Services, care or assistance for which payment or reimbursement

is or may be sought under section 43.03 of the mental hygiene law or

section one hundred four of the social services law.

(2) To the extent that said paragraph (b) does not apply, the trust

shall not be treated as a supplemental needs trust under this section,

and the trust shall be construed, and the trust assets considered,

without regard to the provisions of this section.

(d) The provisions of paragraph (b) of this section shall not apply to

bar claims by government against persons with an interest in or under

the trust other than the beneficiary.

(e) (1) The following language may be used as part of a trust

instrument, but is not required, to qualify a trust as a supplemental

needs trust:

1. The property shall be held, IN TRUST, for the benefit of

________________________ (hereinafter the "beneficiary") and shall be

held, managed, invested and reinvested by the trustee, who shall collect

the income therefrom and, after deducting all charges and expenses

properly attributable thereto, shall, at any time and from time to time,

apply for the benefit of the beneficiary, so much (even to the extent of

the whole) of the net income and/or principal of this trust as the

trustee shall deem advisable, in his or her sole and absolute

discretion, subject to the limitations set forth below. The trustee

shall add to the principal of such trust the balance of net income not

so paid or applied.

2. It is the grantor's intent to create a supplemental needs trust

which conforms to the provisions of section 7-1.12 of the New York

estates, powers and trusts law. The grantor intends that the trust

assets be used to supplement, not supplant, impair or diminish, any

benefits or assistance of any federal, state, county, city, or other

governmental entity for which the beneficiary may otherwise be eligible

or which the beneficiary may be receiving. Consistent with that intent,

it is the grantor's desire that, before expending any amounts from the

net income and/or principal of this trust, the trustee consider the

availability of all benefits from government or private assistance

programs for which the beneficiary may be eligible and that, where

appropriate and to the extent possible, the trustee endeavor to maximize

the collection of such benefits and to facilitate the distribution of

such benefits for the benefit of the beneficiary.

3. None of the income or principal of this trust shall be applied in

such a manner as to supplant, impair or diminish benefits or assistance

of any federal, state, county, city, or other governmental entity for

which the beneficiary may otherwise be eligible or which the beneficiary

may be receiving.

4. The beneficiary does not have the power to assign, encumber,

direct, distribute or authorize distributions from this trust.

(2) (i) If the creator elects, the following additional language may

be used:

5. Notwithstanding the provisions of paragraphs two and three above,

the trustee may make distributions to meet the beneficiary's need for

food, clothing, shelter or health care even if such distributions may

result in an impairment or diminution of the beneficiary's receipt or

eligibility for government benefits or assistance but only if the

trustee determines that (i) the beneficiary's needs will be better met

if such distribution is made, and (ii) it is in the beneficiary's best

interests to suffer the consequent effect, if any, on the beneficiary's

eligibility for or receipt of government benefits or assistance.

(ii) If the trustee is provided with the authority to make the

distributions as described in subparagraph (2) (i), the creator may

elect to add the following clause:

; provided, however, that if the mere existence of the trustee's

authority to make distributions pursuant to this paragraph shall result

in the beneficiary's loss of government benefits or assistance,

regardless of whether such authority is actually exercised, this

paragraph shall be null and void and the trustee's authority to make

such distributions shall cease and shall be limited as provided in

paragraphs two and three above, without exception.

(f) Nothing in this section shall affect the establishment,

interpretation or construction of trust instruments which do not conform

with the provisions of this section, nor shall this section impair the

state's authority to be paid from or seek reimbursement from any trust

which does not conform with the provisions of this section or to deem

the principal or income of such trust an available resource under any

program of government benefits or assistance.