Understanding Florida Special Needs Trusts: First-Party vs. Third-Party Trusts

What is a Florida Special Needs Trust?

A Florida Special Needs Trust, also referred to as a supplemental care trust, is a type of trust that allows for assets to be available for a beneficiary while not interfering with important government programs that the beneficiary receives, such as Medicaid, Social Security Disability and Food Assistance.

First-Party Trust vs. Third-Party Trust in Florida

There are two types of Special Needs Trusts that this article will discuss. The most critical distinction between the two types involves whose money or assets are being used to fund the Trust. A Florida Special Needs Trust established with assets and/or income belonging to the trust Beneficiary, is called a First-Party Trust, whereas a Special Needs Trust established with assets and/or income provided by third party, is referred to as a Third-Party Trust.

Both Third-Party and First-Party Special Needs Trusts in Florida are established by a “Grantor”. The Grantor of the Trust must designate a “Trustee”, who will be in charge of overseeing the assets in the Trust and making distributions for the trust Beneficiary. The rules regarding who can serve as the Grantor differ depending on whether it is a First-Party Special Needs Trust or Third-Party Special Needs Trust and will be within this article.

These trusts can be funded using assets held:

• in bank accounts
• in real estate
• in life insurance policies
• in retirement accounts, such as IRAs and 401(k)s
• in a combination thereof

Florida Special Needs Trusts: First-Party

A First-Party Special Needs Trust can only be funded using the beneficiary’s own assets.  The Grantor of the Trust can be:

• the disabled beneficiary, who establishes the Trust on his or her own behalf
• parent
• grandparent
• guardian
• legally appointed agent of the beneficiary

Even if the Grantor is not the beneficiary, the trust can still only be funded using assets owned by the beneficiary. The Trustee of a First-Party Special Needs Trust can be anyone other than the trust beneficiary.

When is a First-Party Trust Used?

Common situations where a First-Party Special Needs Trust may be used include:

• Receiving proceeds from a personal injury settlement
• Receiving a direct inheritance
• Accumulating assets that exceed Medicaid or SSI limits
• Protecting eligibility for public benefits

A First-Party Special Needs Trust in Florida allows for the disabled individual to transfer the assets that exceed  the allowable limits of means tested public benefit programs into the trust without incurring a penalty or loss of benefits.

First-Party Trust Rules and Regulations

First-Party Special Needs Trusts in Florida must meet specific criteria outlined under federal law and regulations:

• The trusts must be irrevocable
• The beneficiary must meet the Social Security definition of disabled
• The trust must be funded using the beneficiary’s own assets
• Additional contributions generally cannot be made after age 65
• The trust must comply with federal Medicaid rules

First-Party Trust Medicaid Payback Requirements

While First-Party Special Needs Trusts can be an invaluable tool when it comes to preserving an individual’s eligibility for public benefits, their big draw back is that all First-Party Special Needs Trusts in Florida are subject to Medicaid payback at the beneficiary’s death.

This means that once the beneficiary passes:

• Medicaid may seek reimbursement for benefits paid during the beneficiary’s lifetime
• Remaining trust assets may first be used to satisfy Medicaid payback requirements
• Other beneficiaries may inherit only after Medicaid reimbursement obligations are satisfied

Florida Special Needs Trusts: Third-Party

A Florida Third-Party Special Needs Trust is established by a Grantor who is someone other than the disabled beneficiary, such as a parent, grandparent, family member, or friend. Like a Florida First-Party Special Needs Trust, the Trustee can be anyone other than the trust beneficiary.

Unlike First-Party Special Needs Trusts, however, Third-Party Trusts are generally subject to fewer restrictions and offer greater flexibility for families planning for a loved one’s future.

For example, the beneficiary of a Third-Party Special Needs Trust is not required to have a disability determination from the Social Security Administration. This allows the Grantor to establish the trust for any individual they believe would benefit from structured financial oversight and asset protection.

Additionally, the Grantor can maintain greater control over how trust assets are used, even after the Grantor’s death. If the beneficiary later becomes eligible for public benefits such as Medicaid or Social Security Disability, properly structured trust assets generally will not be considered countable resources for eligibility purposes.

Benefits of a Florida Third-Party Special Needs Trust may include:

• Greater flexibility in trust planning
• No Medicaid payback requirement at the beneficiary’s death
• The ability to control how funds are distributed
• Protection of eligibility for certain public benefits
• The ability to name remainder beneficiaries
• The option to modify or revoke the trust in certain circumstances

Another important distinction is that Third-Party Special Needs Trusts are not subject to Medicaid payback requirements. Instead, when the beneficiary passes away, any remaining trust assets can be distributed to the individuals or organizations named by the Grantor in the trust document.

Additionally, because Third-Party Special Needs Trusts may be established as revocable trusts, the Grantor can often make changes to the trust during their lifetime, including updating trustees or modifying remainder beneficiaries as circumstances change.

As a result, Florida Third-Party Special Needs Trusts can provide families with a flexible way to help support a loved one financially while preserving eligibility for important public benefits now and in the future.

Which Type of Florida Special Needs Trust is Best?

Because Third-Party Special Needs Trusts offer greater flexibility and avoid Medicaid payback requirements, they are often the preferred planning option when available. Given the different treatment of these trusts, particularly with regard to Medicaid payback, it is often preferable to use a Third-Party Special Needs Trust whenever possible.

Plan with a Florida Special Needs Trust Attorney

Proper Special Needs planning can help families:

• Preserve Medicaid and SSI eligibility
• Protect inherited assets
• Provide long-term financial support
• Maintain greater control over distributions
• Plan for future caregiving needs

Planning ahead can help provide long-term financial security and peace of mind for loved ones with disabilities or special needs. An experienced Florida Special Needs Trust attorney can help families create a plan tailored to their unique goals and circumstances.