What is a First Party Special Needs Trust?
Special needs trusts allow one to organize a trust for a loved one without affecting their eligibility for needs-based governmental programs (Medicare, Medicaid). Because they are organized by a loved one, and not the trustee themself, most special needs trusts are “third-party” special needs trusts.
Most of the time, when you hear about a special needs trust, you are actually hearing about “third-party” special needs trusts. There is, however, another type that may be more appropriate given your particular circumstances. Read on to learn about first-party special needs trusts and how they can be effectively used.
First-party special needs trusts (also called self-settled special needs trusts) are trusts funded by the person with the disability. This allows them to store certain assets outside of their legal control so they can collect distributions from the trust without impacting their eligibility for other needs-based programs.
There are a few caveats for this type of trust that do not exist for third-party special needs trusts: the beneficiary must be under the age of 65, the trust must be irrevocable, and should funds still be available upon the death of the beneficiary, they will be used to repay the government for certain medical expenses.
Typically, first-party special needs trusts (or SNTs) are utilized when a person intends to rely on needs-based assistance for a special need, and they come into new money. Examples of this include receiving a personal injury award or insurance payment, inheriting a significant sum of money from family, or receiving a substantial martial asset following divorce.
Trusts such as these are crucial for planning for one’s long-term care options. Elder care can cost families thousands of dollars a month, something most people cannot afford out of pocket. Working with a qualified elder law attorney is the best way to ensure that your trusts maximize your your chances of qualifying for needs-based government programs.
