Third-party special needs trusts, as the name implies, are funded with assets that never belonged to the trust beneficiary...Read more
A Special Needs Trust (SNT) can play an important role in preserving the financial security and lifestyle of a person with special needs. A properly drafted SNT allows the individual to benefit from supplemental resources while still qualifying for public benefits, such as Supplemental Security Income (SSI) and Medicaid. Generally, when a parent or guardian wishes to establish and fund a trust for the benefit of a minor child, the attorney recommends a "third-party" SNT be set up for the child. But, when the person with special needs has his or her own assets, another option may be more appropriate: the "first-party" or "self-settled" SNT.
What Is a First-Party SNT?
Like a third-party SNT, the first-party trust is designed to benefit individuals with special needs who qualify - or expect to one day require - public benefits that are available only to people with limited resources. Both third- and first-party SNTs allow assets to be set aside for "supplemental" expenses not covered by SSI or other resources. For example, a trustee can distribute SNT funds to pay for education expenses, a vacation or hobbies, but not for food or shelter, which are covered by SSI.
What differentiates a first-party SNT is the following:
When Is a First-Party SNT Appropriate?
A first-party SNT may be desirable when an individual with special needs has assets - or expects to receive assets - that would disqualify him or her from eligibility for public benefits. Some examples include:
Because each situation is unique, it is important to discuss the best alternative with a knowledgeable special needs attorney.