By Harry S. Margolis
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, we generally called the trusts we created for people with disabilities “supplemental” needs trusts. Our thinking was that the purpose of the trusts was to supplement the assistance provided by Medicaid, Medicare, Social Security, Supplemental Security Income 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, as “pay-back” trust referring to the feature that any funds remaining in the trust at the beneficiary’s death must be used to reimburse the state Medicaid agency, 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 what’s 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.Margolis & Bloom, LLP, practices estate, long-term care and special needs planning in Boston, Dedham, Framingham and Woburn with a strong commitment to client service. If you have questions about these or other legal matters, do not hesitate to contact us by e-mail by clicking here or by calling us at 617.267.9700.