“Special” or “Supplemental” Needs Trusts? – Massachusetts

By Harry S. Margolis

Special-Needs-Planning-Disability-Estate-Planning-Welesley

When the field of special needs planning began some three 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 (MassHealth in Massachusetts), Medicare, Social Security, Supplemental Security Income, and other public benefits programs whose level of support is meager at best.

Third-Party vs. Self-Settled Trusts

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 new trusts “special” needs trusts and continuing to call the older 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. Now, “special” needs trust refers both to the purpose of the trust to pay for the beneficiary’s unique or special needs, and to their identity as people with special needs (a term many people prefer to people with disabilities or disabled people). 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 self-settled under OBRA, which are often referred to as “(d)(4)(A)” trusts. These can also be called “pay-back” trusts, 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. “Self-settled” trusts refer to the fact that these trusts are created with the Medicaid beneficiary’s own funds.

Whatever the Name, a Common Purpose

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 more important distinction is whether the money and property funding the trust belongs to the beneficiary seeking benefits or comes from someone else, such as a parent or grandparent. If the funds belong to the beneficiary, he or she must use a trust that provides for paying back the state for Medicaid (MassHealth) benefits at her death. If the funds come from someone else, there’s no need for such a payback provision.

 

Read more on this topic:

Making Sure the Inheritance for Your Special Needs Child Doesn’t Disappear

How the Differences between SSI and SSDI Can Impact Financial Planning for Your Special Needs Child

 

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