A special needs trust (SNT), also called a supplemental needs trust, is a trust that holds assets for the benefit of someone with a mental or physical disability who is receiving Medicaid or Supplemental Security Income (SSI). An SNT is structured so that the disabled beneficiary can continue to receive these government benefits even though the trust holds assets that exceed the allowable asset guidelines for these programs. Since the funds are meant to supplement, not supplant, government benefits, there are restrictions on how funds can be used.

A first party supplemental needs trust, also called a or self-settled trust, is created with assets belonging to a disabled person for his or her own benefit. In New York State, the person must be under 65 to create the trust. The first party supplemental needs trust must include a “payback provision” to Medicaid. This payback clause states that any funds remaining in the trust at the beneficiary’s death must be used to reimburse Medicaid the cost of care for services rendered during the beneficiary’s lifetime. Only after Medicaid is paid back can other individuals inherit assets.

A third-party supplemental needs trust is created for the benefit of a disabled individual using someone else’s funds. This type of SNT does not have to reimburse Medicaid and can name beneficiaries who inherit upon the death of the disabled individual.

Supplemental needs trust are set up for disabled individuals who receive means-based public benefits:

- by parents or other family members for disabled individuals who want to ensure that the disabled individual has funds available to supplement their lifestyle without forfeiting government benefits and programs; or

- by or for the disabled individual from a personal injury settlement or inheritance to maintain the government benefits. Note that nobody should leave assets to a disabled individual who receives means-based government benefits based– any inheritance should be left in a third party SNT.

Means-based government benefits are public benefits that are only available when certain strict income and asset guidelines are met. In NYS, this would be Medicaid and Supplemental Security Income (SSI). Neither Social Security Disability Insurance (SSDI) benefits nor Medicare are means-based so an SNT may not be needed for such disabled individuals.

What can or cannot be paid from a supplemental needs trust ultimately depends on what is considered countable income and assets for purposes of eligibility for the particular government benefit the disabled individual is receiving. The trustee may not make any direct payments to the disabled person and may not use the funds of the trust to pay for anything that the government benefits already provide. In practice, this most often means complying with Supplemental Security Income (SSI) guidelines. Any unearned income reduces the SSI benefit- dollar by dollar - by the amount of the income.

Therefore, all distributions from the trust have to be made to the provider of services, not outright to the disabled person. The disabled individual can have certain exempt assets in his or her name. These include, but are not limited to, a home, household furnishings, a car, term life insurance, a burial plot. The trustee of the supplemental needs trust may not give cash payments to the beneficiary, but can purchase goods or services with trust assets for the sole benefit of the SSI recipient. For example, the Supplemental Needs Trust can pay for summer camp, a computer, car service, clothing, a vacation or a van. This greatly improves the disabled person’s life without the loss of necessary government benefits.

Anyone but the disabled individual can be the trustee of a supplemental needs trust.