What is the Purpose of a Special/Supplemental Needs Trust?

A Special Needs Trust, also called a Supplemental Needs Trust (“SNT”), ensures that a catastrophically injured person will have their long-term medical and subsistence needs provided for without sacrificing their basic support or depleting their funds. SNTs allow families to achieve some piece of mind that a loved one will be cared for after family caregivers have passed away, and that the responsibility of the injured person’s care doesn’t fall entirely on public sources.

SNTs were codified in the U.S. Omnibus Budget Reconciliation Act of 1993 to preserve the assets of an injured plaintiff and help provide them a lifetime of care, even for those who are catastrophically injured. Properly drafted, an SNT preserves the injured person’s access to public benefits like Medicaid and Supplemental Security Income (SSI) without disqualification, supplemented by the assets within the SNT. SNTs are often funded with structured settlements to avoid paying tax on investment interest, further preserving the assets and shifting the mortality risk to a large, highly-rated life insurance company.  

What does a Special Needs Trust provide, compared to Medicaid and SSI?

Medicaid and SSI provide disabled people with only the bare necessities to maintain their health and support, while the funds within the SNT provide a disabled person additional materials and services that family members might otherwise have tried to provide during their lifetime. SNTs are distinguishable from other trusts in part because the purpose of SNTs is to provide only for the beneficiary’s “special,” or “supplemental,” needs. The terms “special” and “supplemental” are interchangeable and refer to needs not addressed by public benefits. The funds preserved in an SNT can be used to provide services and goods above and beyond those provided by Medicaid.

Many SNTs used by injury victims are full support trusts that can be used for the trust beneficiary’s food, shelter and clothing. Additional necessities the SNT can provide include transportation, travel, vacations, entertainment, reading materials, computer equipment, toiletries, and companionship – things can greatly enhance a catastrophically injured person’s life. SNT distributions may also provide a disabled person with medical care that Medicaid doesn’t provide, such as over-the-counter medication, experimental medical treatments, nurses, Narcan funding, drug addiction education and prevention services, and sophisticated diagnostic services.

What safeguards are built into a Special Needs Trust?

There are a number of safeguards built into a properly drafted SNT. First, the SNT must be irrevocable. That is, once created it may not be amended by the grantor, and once it is funded, the trust assets may only be used as directed by the trust instrument (including structured settlements, which name the SNT their irrevocable payee.) Second, the injured person must be the only beneficiary of the trust. Third, parents or other beneficiaries can only receive any remainder of the trust upon termination, and only after the state Medicaid lien has been repaid. Finally, the SNT may utilize an independent trustee, such as a lawyer, accountant or bank in cases where family members are inexperienced or have potential conflicts of interest. An independent trustee will have an independent fiduciary duty (along with insurance coverage, such as fidelity insurance) to perform the investing, management and accounting services required by the trust for the sole benefit of the catastrophically injured person. The existence of an independent trustee removes the threat of conflicts of interest or undue influence from family members.


By John McCulloch, Arcadia Settlements Group


This is not intended as legal advice and may not be relied upon as such. Parties contemplating the use of a Special Needs Trust should consult with their own legal advisors.