4 Differences Between a Supplemental Needs Trust and a Special Needs Trust

September 7, 2022
Alec Borenstein

Special needs trusts are designed to provide financial assistance to disabled individuals without risking their eligibility to receive government benefits. A supplemental needs trust is a special needs trust funded by a third party and will be explored in more detail below. While both trusts are quite similar and share the same general purpose, there are some noteworthy differences when determining which trust best suits your family’s needs which our estate planning attorneys will explain to you.


Special Needs Trust Funds: What Can They Be Used For?

Assets for establishing a special needs trusts are placed in a trust estate and managed by a trustee on behalf of a disabled individual who is the trust beneficiary. Funds from these trusts are not paid directly to the disabled individual, nor do they replace or duplicate the individual’s government benefits. These funds are used expressly to supplement government benefits in alignment with federal laws governing these types of trusts. While government benefits cover a percentage of basic living costs, such as rent, food, and medical expenses, these trusts provide a safety net and improve the disabled person’s quality of life. Both types of trusts can pay for personal care, home care attendants, home furnishings, out-of-pocket medical and dental expenses, transportation, rehabilitation, and even vacations.

Special Needs Trusts Vs. Supplemental Needs Trusts: How They are Different

While both trusts are used for the same purpose, there are several trust mistakes you can make if you don't understand the difference between these two types of trusts. Here are five important ways that special needs trusts differ from supplemental needs trusts:

  1. Special needs trusts consist of two different types of trusts: a first party SNT, which the disabled individual establishes on their own behalf, and a third party SNT, also known as the supplemental needs trust, which is funded by a third party, such as a parent or grandparent of the disabled person.
  2. A special needs trust must be established and funded before the beneficiary reaches 65 years of age. While assets may continue to be held in the trust after the beneficiary reaches that age, no additional assets may be transferred to the special needs trust after that age is reached. Conversely, there are no age limitations for the disabled beneficiary regarding establishing or funding a supplemental needs trust.
  3. Reimbursement to the government for medical expenses paid on the beneficiary’s behalf is required upon the recipient’s death in a special needs trust. However, there is no reimbursement of benefits requirement with a supplemental needs trust.
  4. The beneficiary of a special needs trust must have a disability recognized and documented by the Social Security Administration. In some states, this is also the rule for supplemental needs trusts, but it varies from state to state and can be confirmed by your estate planning attorney.  

The Complexities of Special Needs Trusts

Special needs trusts are one of the few ways disabled individuals can acquire and possess assets without losing or putting their government benefits at risk. Special needs trusts can be complex in language and how they are established. It is essential to enlist an experienced estate planning attorney specializing in SNTs, not only to guarantee the legal validity of the trust but to ensure that the trust language is broad enough to accommodate the changing needs of the disabled person as they grow older. If you need to review your estate plan or develop a new one, we encourage you to get in touch with BMC Estate Planning and consult with one of our skilled legal professionals who can provide valuable information and guidance to determine which type of SNT will best serve your family’s needs.  

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Borenstein, McConnell & Calpin, P.C. is a Wills & Estate Planning law firm serving Central and Northern New Jersey, as well as New York City. We strive not only to give you a great client experience, but to become your trusted adviser for life. To reach Alec, please send an email to alec@bmcestateplanning.com.

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