A supplemental needs trust is a discretionary trust created for the benefit of a person with a severe and chronic or persistent disability.
There are two types of supplemental needs trusts. The first is a first party/payback trust. This is a trust which is funded with assets which belong to the disabled person who will be the beneficiary of the trust. Such a trust can be established by the disabled person’s parent/s, grandparent/s, guardian, or by court order. The trustee may make distributions from the trust for the benefit of the beneficiary provided that such distributions are not for any expense otherwise paid for by a governmental benefit. The reason this type of trust is referred to a “payback trust” is that once the disabled beneficiary either dies or is cured of his or her disability, any governmental agency which contributed to such disabled person’s health care or other needs is entitled to take from the trust any money it has expended on the disabled person’s behalf before any remainder beneficiaries will be entitled to any money remaining in the trust.
The second type of supplemental needs trust is a third party trust. Such trust is funded with money and/or property belonging to anyone besides the disabled person who is to be the beneficiary of the trust. Unlike a first party/payback trust, this trust can be established by any individual, regardless of their relationship to the beneficiary. Similar to a first party/payback trust, the trustee of a third party trust may make distributions from the trust for the benefit of the beneficiary provided that such distributions are not for any expense otherwise paid for by a governmental benefit. Unlike a first party/payback trust, governmental agencies who have expended money for the benefit of a disabled cannot seek recoupment of such funds. On the death of the beneficiary, the funds remaining in the trust can be distributed to anyone chosen by the person who created the trust.
