What’s the Difference Between ‘Supplemental’ and ‘Special’ Needs Trusts?

You may have heard the terms “special” needs trust and “supplemental” needs trust and wondered what the difference is. The short answer is that there’s no difference. Here’s the long answer.

When the field of special needs planning began some two decades ago, trusts created for people with disabilities were generally called supplemental needs trusts. The thinking was that the purpose of the trusts was to supplement the assistance provided by Medi-Cal (Medicaid), Medicare, Social Security, Supplemental Security Income (SSI) and other public benefits programs whose level of support is meager at best.

With passage of the OBRA legislation in 1993 authorizing the creation of self-settled trusts under 42 USC 1396p(d)(4)(A), some practitioners called for distinguishing between these new trusts and third-party trusts often created by a parent, by calling the former special needs trusts and continuing to call the latter trusts supplemental needs trusts. But this approach never really caught on.

Instead, over time both types of trusts have come under the rubric of special needs trusts and the term supplemental needs trust has fallen away. The term special needs trust refers to the purpose of the trust to pay for the beneficiary’s unique or special needs. In short, the title is focused more on the beneficiary while the name supplemental needs trust addresses the shortfalls of our public benefits programs.

Special needs trusts now encompass both traditional third-party trusts and those under OBRA, which are often known as (d)(4)(A) trusts referring to the statute or as pay-back trusts referring to the feature that any funds remaining in the trust at the beneficiary’s death must be used to reimburse Medi-Cal (or the state Medicaid agency in states other than California), or as self-settled trusts referring to the fact that these trusts are created with the Medicaid beneficiary’s own funds.

Special needs trusts created with someone else’s funds, whether a parent, grandparent, or someone else, are often referred to as third-party special needs trusts.

In short, the reference to the trusts as supplemental needs trusts rather than special needs trusts is something of a survival. But whats in a name? Whether supplemental or special the trusts serve the same purpose of helping meet the needs of individuals with disabilities while still permitting them to qualify for vital public benefits programs.

* The information contained in this Blog is intended for general information and educational purposes only and does not constitute legal advice or an opinion of counsel.