The Miller Elder Law Firm explains the two types of special needs trusts- First Party Special Needs Trusts and Third Party Special Needs Trusts. For more information on special needs trusts, see the FAQ Video What Is A Special Needs Trust? If you or a loved one needs assistance setting up a special needs trust or any other type of trust, contact The Miller Elder Law Firm today.
“A special needs trust is a set of instructions to a trustee that says to hold this money for a person who is disabled under Social Security’s definition of disability. There are two different kinds of special needs trust. There is what’s called a first party special needs trust, where you’re taking the money of the individual who is disabled, and you are putting it into a special needs trust for their benefit, to purchase supplemental needs that their government benefits don’t already cover.
With a first party special needs trust, because it was the money of the disabled individual, there is a payback provision that is required. So the money is in trust. It’s for the disabled person’s benefit during their lifetime, over and above the government benefits that they receive. On their death, if there is money left in that trust, Medicaid does have a lien on it. So the amount of money that Medicaid has paid out for their benefit over their lifetime has to be paid back. If there’s any money after that, it can go to loved ones. That’s only in a first party special needs trust.
A third party special needs trust is different. That’s when you take the money from someone who is not disabled, a parent, a grandparent, an aunt, and uncle. They want to put money into a trust for someone who is disabled. So they take their own money. They put it in trust for the disabled individual’s benefit, but it’s never given to the disabled individual directly.
So the money is held by a trustee. The trustee can purchase additional items for the person who is disabled above and beyond what they get from their government benefits. And it could be very broad. They can purchase a home for them. They can purchase trips for them, additional therapies, any kind of luxury items. All those things can be purchased.
On the disabled individual’s death, there is no payback provision, because it was never the disabled person’s money. So Medicaid doesn’t get paid back anything that they’ve paid out, and whatever money is left can be distributed under the terms of the trust. So it could go to another grandchild. It could go to another sibling. Anything like that. So third party trusts are a little bit more flexible.
But sometimes a first party special needs trust is required if the disabled individual receives an inheritance, or wins a settlement. Then we have to do something to preserve those benefits, and a first party special needs trust is the right way to go. So it all depends on your situation, what your goals are, whose money we’re putting in the trust, as to whether or not you’re going to need a first party special needs trust, or a third party special needs trust.”
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