What Is a Supplemental Needs Trust vs. a Special Needs Trust?
Many families don’t start learning about disability planning in a lawyer’s office; it usually begins at the kitchen table.
A parent is updating a will, a grandparent wants to leave a gift, or a relative simply asks, “If something happens to us, who will take care of them?” Then someone mentions an SNT, and suddenly you hear two names, Supplemental Needs Trust and Special Needs Trust.
Most people immediately wonder if they’re different documents. The confusing part is that in everyday conversation, professionals often use the terms interchangeably.
What matters is the purpose: the trust holds money for a person with a disability so they can receive financial support without accidentally losing essential public benefits. Where it starts to matter is not so much the name, but where the money comes from.
This distinction ends up being incredibly important in real life. A properly structured trust allows a loved one to keep eligibility for programs like Medicaid and SSI while still benefiting from support for therapies, education, transportation, and everyday quality-of-life expenses. But a well-meaning inheritance given outright can unintentionally interrupt benefits and create months of paperwork and stress.
To make careful decisions now, understanding how these trusts work helps families so the support they intend to provide truly helps, rather than complicates, their loved one’s future.
Clearing Up the Confusion
The terms Special Needs Trust and Supplemental Needs Trust are often used as if they mean the same thing. In everyday conversation, they usually do. However, in New York law, the term Supplemental Needs Trust is the one formally recognized under EPTL §7-1.12 (Estates, Powers & Trusts Law).
This statute defines how a trust can be drafted to supplement, not replace government benefits for a person with a disability.
Special Needs Trust is a broader, more general term used nationally. It refers to any trust designed to preserve eligibility for means-tested benefits while providing additional financial support.
In New York, when attorneys or courts refer to a “Special Needs Trust,” they are typically referring to a Supplemental Needs Trust that complies with state law.
Similarities Between the Two
Both types of trusts share the same core purpose:
To enhance the quality of life for a person with disabilities without jeopardizing eligibility for Medicaid, SSI, or other public benefits.
To hold and manage assets for the beneficiary’s benefit, paying for needs not covered by government programs.
To supplement, not replace, public assistance, covering expenses like education, recreation, therapies, travel, and personal care items.
In practice, both terms describe trusts that serve the same function. The key is ensuring the trust is drafted correctly under New York’s Supplemental Needs Trust statute.
First-Party vs. Third-Party Trusts
The most important distinction is not between special and supplemental, but between first-party and third-party trusts.
First-Party Supplemental Needs Trust
Funded with the beneficiary’s own assets, such as an inheritance, personal injury settlement, or savings.
Must be established by a parent, grandparent, legal guardian, or court before the beneficiary turns 65.
Must include a Medicaid payback provision, meaning that after the beneficiary’s death, any remaining funds must reimburse the state for Medicaid benefits paid.
Third-Party Supplemental Needs Trust
Funded with assets belonging to someone other than the beneficiary, such as parents or relatives planning through their estate.
Can be created during life or through a will.
No Medicaid payback is required; remaining funds can pass to other family members or charities after the beneficiary’s death.
Both types protect benefits, but they serve different planning purposes. Families often use a third-party trust for long-term planning and a first-party trust when the beneficiary unexpectedly receives assets.
Protecting Benefits in New York
New York’s Medicaid and SSI programs have strict income and resource limits. If a person with disabilities receives money directly through inheritance, lawsuit, or gift it can disqualify them from benefits.
A properly drafted Supplemental Needs Trust prevents this by holding the funds in a way that does not count as the beneficiary’s own resources.
The trustee can use the funds to pay for goods and services that improve the beneficiary’s life, as long as payments are made directly to vendors or service providers. For example, the trust can pay for:
Medical and dental care not covered by Medicaid
Education and vocational training
Transportation, including a vehicle
Personal care attendants
Vacations, hobbies, and entertainment
The trust cannot give cash directly to the beneficiary for food or shelter without affecting SSI benefits, but careful administration ensures compliance while maximizing quality of life.
Practical Guidance for New York Families
Use the correct terminology. In New York, Supplemental Needs Trust is the legally recognized term.
Work with an experienced attorney. The trust must comply with EPTL §7-1.12 and federal benefit rules.
Plan early. Establishing a third-party trust as part of an estate plan avoids complications later.
Coordinate with benefits advisors. Trustees should understand how distributions affect Medicaid and SSI.
Review regularly. Laws and benefit programs change; periodic updates keep the trust effective.
Families in New York often find peace of mind knowing that a properly structured Supplemental Needs Trust can protect both financial security and essential benefits for years to come.
Contact our experienced attorneys to learn more about planning for loved ones with disabilities at Moskowitz Legal Group. Our team helps New York families create trusts that protect benefits, preserve assets, and provide lifelong support.
