What’s the Difference Between a
Special Needs Trust and a Supplemental Needs Trust?
2006
I often get the question: What is the difference between a Special Needs Trust and a Supplemental Needs Trust? It’s easy to understand the confusion. Both of them go by the initials "SNT." Both of them are creatures of state and federal law. Both of them deal with persons with disabilities.
A Special Needs Trust is created for a disabled person with funds of the disabled person. The funds typically come from a personal injury settlement or an inheritance. A personal injury settlement can come about by the disabled person being involved in an accident. In fact, many times it’s the event that rendered the disabled person disabled. The reason for the trust is that, without it, the disabled person would lose government benefits. These typically include Medical Assistance and Social Security Income.
The trust assets can be used to supplement, but not supplant, the government benefits that the disabled person receives. For example, the trustee could pay for travel, plastic surgery not determined to be medically necessary, orthodontia treatment, a private room in a nursing home, housing, etc.
One important feature of a Special Needs Trust is that there must be a payback provision. A payback provisions means that, upon the death of the disabled person, any assets remaining in the trust must first be applied to repay medical assistance for funds it expended. Any balance can go to the family of the disabled person.
On the other hand, a Supplemental Needs Trust is a trust created by a third person, for example, parents of a person with a disability, with their own money. Again, this trust can be used to supplement, but not supplant, government benefits. In this type of trust, no payback provision is required. The reason for this is that the funds used to create the trust never belonged to the disabled person in the first place. Therefore, upon the death of the disabled person, the trust assets can go to charity or to the family.
A Supplemental Needs Trust can be established during the lifetime of the person creating it (the settlor) or by the will of the settlor.
One thing the trusts have in common is that they both supply a disabled person with things they would not normally have but for the existence of the trust. Both trusts allow the existence of these benefits without disqualifying the disabled person for government benefits.
The following is a chart, prepared by attorney Robert G. Gunderson, Edina, Minnesota, that compares the relevant characteristics of these trusts:
|
Supplemental Needs Trust
M.S. §501B.89, Subd. 2 |
Special Needs Trust
M.S. §501B.89, Subd. 3 |
Use |
Needs not provided by government funded programs |
Needs not provided by government funded programs |
For |
Person with a disability under age 65 or who is over 65, but is residing in long term care |
Person with a disability under age 65 |
Established By |
Someone other than beneficiary or spouse |
Parent, grandparent, legal guardian or court |
Funded By |
Someone other than beneficiary or spouse or anyone obligated to beneficiary per terms of settlement or judgment |
"Assets of the individual" equals resources of individual or spouse or assets they are entitled to, but not receiving, due to action by individual, spouse, court or person with legal authority to act |
Distribution on Death |
To person or non-profit designated by settlor |
Must be paid to government agency to reimburse all Medical Assistance provided to beneficiary; excess to person or nonprofit designated by settlor |
Planning Tool |
To provide for client’s family member with a disability |
To "protect" client’s assets |
Contact us to discuss setting up your Special Needs Trust or Supplemental Needs Trust.