What is a First Party Special Needs Trust and When is it Useful?

Special needs trusts can be an invaluable tool for elder and estate planning. A special needs trust allows you to set up a loved one with income without affecting their eligibility for needs-based governmental programs like Medicare and Medicaid. Most of the time, when you hear about a special needs trust, you are actually hearing about “third-party” special needs trusts. There are, however, other types 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 vs. Third-Party Special Needs Trusts

A special needs trust (SNT) is a legal vehicle that allows someone to accumulate wealth for the benefit of an individual with special needs without affecting the beneficiary’s eligibility for governmental assistance. Typically, a parent, grandparent, or other family member will set up a third-party special needs trust for a child or grandchild with a disability or other special needs. “Third-party” means that the party funding the trust is different from the party that is collecting the trust proceeds.

First-party special needs trusts, also called self-settled special needs trusts, are trusts funded with the assets of the person with the disability. First-party SNTs allow a person with a disability to store certain assets outside of their own legal control, so they can collect distributions from the trust without affecting their eligibility for needs-based programs.

First-party SNTs carry additional rules and limitations beyond the requirements of a third-party SNT. The beneficiary of a first-party SNT must be under the age of 65 (third party SNTs can be established at any time), the trust must be irrevocable (the beneficiary must not be able to change their mind and take back the assets), and should funds be left in the trust upon the death of the beneficiary, they will be used to repay the government for certain medical payments made during the life of the beneficiary.

When Should You Use a First Party Special Needs Trust

First-party SNTs are typically utilized when a person intends to rely on needs-based assistance for a disability or other special needs and comes into a new sum of money. First-party SNTs are rarely used to house pre-existing assets. Instead, they are most often used by people who are set to acquire new assets that would affect their eligibility for government assistance, for example:

• recipients of a personal injury award or insurance payment;
• heirs set to inherit a significant sum from a family member; or
• a divorcing person set to receive substantial marital assets.

Experienced Help Preparing For Your Long-Term Care

A knowledgeable West Palm Beach elder law attorney can help you and your family plan appropriately to maximize your chances to qualify for Medicaid and other needs-based governmental programs, and to explore all of your options for long-term care. If you are in need of a dedicated and thorough Florida asset protection and elder law attorney, contact the experienced West Palm Beach elder law attorneys Shalloway & Shalloway at 561-686-6200.