1. Statute
  2. Notes

Statute

EPTL 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.

Notes

Peter J. Strauss, Caring for a Child With Disabilities: Law and the Aging, NYLJ, Oct. 2, 1998:

it is necessary to keep in mind the limitation of EPTL Sec. 7-1.12(c), which disqualifies the trust as a statutory SNT to the extent it is funded by a person who has an obligation of support of the beneficiary. What to do here? It can be argued that, where a minor is involved, the SNT should not be established under EPTL Sec. 7-1.12 but should be a common law Escher SNT and that, accordingly, the only consequence is the loss of the favorable presumptions of EPTL Sec. 7-1.12, but not the protections afforded by Escher and its progeny.7

Fn 7. In Matter of Escher, 94 Misc2d 952 (Surr. Bx. Co. 1980) Surrogate Gelfand established the principle that the intent of a testator to provide supplemental benefits over and above the benefits provided by a government entitlement program and not to have trust funds used to pay for the care that the government program provided would be honored. The claim of the Department of Mental Hygiene was dismissed. Escher was affirmed by the Court of Appeals at 438 NY2d 1006 (1991)1.

  1. The correct citation is In re Escher, 52 N.Y.2d 1006 (1981). ↩