First Party Special Needs Trust

Why Do You Need a First Party Special Needs Trust?

It’s not uncommon for a person with special needs to qualify for public benefits like Supplemental Security Income (SSI) and Medicaid.

However, these government assistance programs are “means-tested,” meaning that eligibility is determined based on the disabled person’s income and financial resources.

Unfortunately, these strict eligibility requirements can cause a person with special needs to lose their essential benefits if they receive a large sum of money, such as an inheritance or compensation from a lawsuit.

But there is a solution…

What is a First Party Special Needs Trust?

A First Party Special Needs Trust is a type of trust that can be established for a person with special needs—known as the beneficiary—to protect their eligibility for government assistance programs.

This trust is funded with money and assets that belong to the beneficiary. The assets held in the trust are used for the benefit of the disabled person and are typically not counted against their ability to qualify for benefits.

What are the Benefits of a First Party Special Needs Trust?

• Protect a disabled person from losing their government benefits like SSI, Medicaid, subsidized housing, and vocational rehab.
• Supplement a special needs person’s government assistance to provide care and services that their benefits do not cover, ensuring they live comfortably.
• Appoint someone you trust to manage the finances on behalf of the disabled beneficiary to make sure they are cared for without being disqualified from benefits.

When Do You Need a First Party Special Needs Trust?

There are several ways a person with special needs might directly receive money or property that could harm their ability to qualify for government assistance if the funds are not placed in the proper type of trust.

• Personal injury award
• Inheritance
• Life insurance policy
• Retirement plan
• Divorce settlement

Among the most common scenarios that result in a disabled individual receiving a large sum of money is from a lawsuit over an injury that caused their disability.

It’s also very common for a well-meaning relative to leave behind a direct inheritance for a loved one with special needs, not realizing that the inheritance should be directed into a special needs trust to avoid jeopardizing their benefits.

How Does a First Party Special Needs Trust Work?

A First Party Special Needs Trust is a type of irrevocable trust. Because it is irrevocable, the trust is permanent and cannot be reversed or dissolved.

These trusts are complex, and there is much at stake if the document is drafted incorrectly. Therefore, it is always recommended to work with an experienced Special Needs Trust Attorney.

To better understand how the document works, let’s look more closely at some of the key parties named in the trust:

Settlor / Grantor

This is the person who creates the trust. Generally, it is also the person whose assets fund the trust. The money used to fund the trust helps supplement the special needs beneficiary’s lifestyle.

Beneficiary

The beneficiary is the individual with special needs for whom the trust is being established to provide support and financial protection.

Trustee

The trustee is the person responsible for managing all of the assets in the trust and making distributions for expenses on behalf of the beneficiary. This role is critical and requires great attention to detail to ensure that expenditures do not disqualify the beneficiary from their government assistance programs.

How Does the Beneficiary Access the Money in a First Party Special Needs Trust?

To ensure that the beneficiary remains eligible for assistance, the funds in the trust cannot be accessed directly by the beneficiary.

Instead, the money must go through the trustee, who uses it to pay for additional expenses that improve the disabled individual’s quality of life.

As you can see, the trustee holds a very important role.

They should be not only trustworthy but also responsible, diligent, and attentive to ensure that all purchases made on behalf of the beneficiary do not endanger their eligibility for benefits.

What Happens To a Self-Settled Trust after the Disabled Beneficiary Passes Away?

A First Party Special Needs Trust is considered a self-settled trust. This means that since the trust was funded with money that the disabled beneficiary owned, it will contain a payback provision directing the trustee to use any remaining funds to reimburse Medicaid for benefits provided during the beneficiary’s lifetime.

What's the Difference Between a First Party and Third Party Special Needs Trust?

One of the key distinctions is that a First Party Special Needs Trust is funded with money and assets that the beneficiary owns or is entitled to.

In contrast, a Third Party Special Needs Trust is funded by money and assets that never belonged to the beneficiary. These trusts are typically created by a parent or grandparent to leave an inheritance for a special needs family member without affecting their government benefits.

Additionally, a First Party Special Needs Trust contains a Medicaid payback provision after the beneficiary passes away, while a Third Party Special Needs Trust does not, since the beneficiary never owned the assets funding the trust.

How Do I Set Up A First Party Special Needs Trust?

If you need to create a First Party Special Needs Trust, it is best to schedule an initial consultation with an experienced Special Needs Trust Attorney. These trusts are complex, and improper setup could negatively impact your loved one’s benefits.

Everyone’s situation is unique. While this article covered the basics of a First Party Special Needs Trust, the best way to get customized guidance is to speak with a professional who can ensure your disabled loved one is properly protected.

At Rochester Law Center, we’ve helped thousands of clients protect their families with comprehensive estate planning. Call us today to schedule a complimentary consultation with one of our experienced Special Needs Trust Attorneys. Reach us at (248) 613-0007.