Decoding First Party Special Needs Trust Vs Third Party Special Needs Trust: 7 Crucial Insights For Your Financial Planning

First Party Special Needs Trust Vs Third Party Special Needs Trust

Special Needs Trusts (SNTs) are an important tool for individuals with disabilities to ensure their financial security. There are two types of SNTs, commonly designated as first-party and third-party SNTs. It is important to determine which type of SNT you have or need, as this depends upon whose property is funding the trust.

If the property funding the SNT originates with the SNT beneficiary, then it must be drafted as a first-party SNT

This type of trust is often used when the beneficiary has received a settlement from a lawsuit or inheritance from a family member. On the other hand, if the property funding the SNT always belonged to someone other than the SNT beneficiary, then it must be drafted as a third-party SNT. This type of trust is typically used when someone other than the beneficiary wants to provide funds for their care and support without affecting their eligibility for government benefits such as Medicaid or Supplemental Security Income (SSI).

First Party Special Needs Trust

A first-party special needs trust is a type of trust that is designed to provide financial support for individuals with disabilities without affecting their eligibility for government benefits. This type of trust is typically funded with the disabled individual’s own assets, such as an inheritance or settlement from a lawsuit. The funds in the trust are used to pay for items and services that are not covered by government programs, such as medical care, housing, transportation, education, recreation and other expenses related to the beneficiary’s disability.

First-party special needs trusts can be useful in many situations. For example, if a disabled individual receives an inheritance or settlement but does not have enough income to cover all of his or her living expenses, a first-party special needs trust can be used to supplement the individual’s income while still allowing him or her to remain eligible for government benefits. Additionally, these trusts can help protect assets from being depleted due to medical costs and other expenses associated with the disability. Finally, they can also provide peace of mind knowing that there will be funds available should something happen to the disabled individual’s primary caregiver.

Frequently Asked Questions About First Party Special Needs Trust Vs Third Party Special Needs Trust

What is the primary difference between a First-Party and a Third-Party Special Needs Trust?

The key distinction lies in who funds the trust. A First-Party Special Needs Trust is funded with the disabled individual’s own assets, while a Third-Party Special Needs Trust is funded by assets belonging to someone other than the beneficiary, such as a parent or grandparent.

What are the eligibility criteria for establishing a First-Party Special Needs Trust?

Generally, to establish a First-Party Special Needs Trust, the individual with a disability must be under the age of 65 and must meet the Social Security Administration’s definition of disability.

How does Medicaid reimbursement differ between First-Party and Third-Party Special Needs Trusts?

Medicaid typically imposes a payback requirement for funds remaining in a First-Party Special Needs Trust upon the beneficiary’s death, while assets in a Third-Party Special Needs Trust may be distributed to other beneficiaries or charities without a payback to Medicaid.

Can a First-Party Special Needs Trust be established by the individual with a disability themselves?

No, a First-Party Special Needs Trust must be established by a parent, grandparent, legal guardian, or the court. It cannot be established by the individual with a disability.

What are some common uses of funds from a Third-Party Special Needs Trust?

Funds from a Third-Party Special Needs Trust can be used to supplement the beneficiary’s government benefits, pay for medical and dental expenses not covered by insurance, provide for recreational activities, and enhance their quality of life without jeopardizing their eligibility for public assistance programs.

Need Information About Special Needs Trusts?

I am Tom Sannicandro, a Special Needs Trust Attorney and I am here to help. I am the founder of a nonprofit corporation that provides quality information about resources available to families as well as providing affordable Special Needs Trusts and estate planning for families. I have over 20 years of experience helping families just like yours. Find out more information at SpecialNeedsTrustsOnline.com or click here to set up a free appointment.