First Party Vs Third Party Special Needs Trust

Posted by smith clea on August 9th, 2022

Don't know which Special Needs Trust is right for you? 

Here's a breakdown of First-Party and Third-Party Special Needs Trusts to help you decide!

Your Special Needs Trust can be either First-Party or Third-Party. 

It depends on your situation and the location of your loved one. 

But what does that mean? The differences between these two types of Special Needs Trusts are pretty straightforward. 

But it’s important to understand both options before deciding which is right for you and your family.

What Are The Differences Between A First-Party Special Needs Trust And Third-Party Special Needs Trust?

A first-party trust is created using the disabled person’s funds, while a third-party trust is created with funds from someone else, such as a parent or grandparent. 

A first-party trust is also sometimes called a self-settled trust. 

The trustee can be the disabled person or someone else. 

A third-party trust must have a third party serve as a trustee. 

Additionally, assets are more difficult to obtain from a first-party special needs trust than from a third-party special needs trust in most cases.

What Type Of Plan Should I Choose As My Beneficiary If I Need Long-Term Care Someday, But Have Young Children Now?

One important factor in choosing a long-term care plan is whether you have young children. 

If you do, you'll want to make sure they are taken care of financially if something happens to you. 

A good option for this is a First-Party Special Needs Trust. 

This type of trust allows you to put money away for your children's future. 

While still providing them with the care they need if you can no longer do so yourself. 

What many people don't realize is that it doesn't matter how much money goes into a first-party special needs trust. 

It will only pay out up to ,000 per month until all the assets run out. 

It may be best to speak with an attorney about what the best strategy would be for your unique situation.

What Type Of Special Needs Trust Do I Need For Medicaid Planning Purposes If I Have An Adult Child With Disabilities?

Who will live in my home someday, but I don’t want to spend my assets until then?

A first-party trust also called a self-settled or (d)(4)(A) trust, is an irrevocable trust funded with the disabled person’s own money. 

The trustee can be anyone the disabled person trusts, including a family member, friend, or professional. 

The beneficiary must be someone other than the disabled person. 

One reason to use this type of trust is if you want your child to stay in your home and enjoy the same lifestyle that they are accustomed to as they age. 

Another reason is if there are siblings who might fight over the money when it comes time for distribution since they would not have any control over how these funds are spent until after their death.

When Can Minors Apply For Government Benefits Through Either Type Of Special Needs Trust?

Minors can only receive government benefits through a First-Party Special Needs Trust if they are the sole beneficiary of the trust. 

And if the trust is established by a parent, grandparent, or legal guardian. 

A Third-Party Special Needs Trust, on the other hand, can be established by anyone as long as the beneficiary is not the settlor (the person who creates and funds the trust). 

To qualify for benefits from a Third-Party Special Needs Trust, an individual must have been determined eligible by the Social Security Administration at some point in their life. 

When an individual has qualified for Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), this qualifies them for eligibility in most cases when applying for benefits from a Third-Party Special Needs Trust.

When Should I Make First-Party Or Third-Party Special Needs Trusts The Beneficiary Of My Irrevocable Trust Or Retirement Plan Accounts As Part Of My Overall Estate Plan Strategy?

A first-party trust, also called a (d)(4)(A) trust, is established with money that belongs to the disabled person. 

For example, an inheritance or lawsuit settlement. 

The trustee has the discretion to use trust funds for the benefit of the disabled person, up to the amount necessary to supplement government benefits, without jeopardizing those.

About The Author

Clea Smith is a USA-based author on Legal issues related to estate planning, will & trust, business law, and elder law. Clea Smith does her best writing on these topics that help users to find the best solutions to their FAQ on estate planning attorney, probate, living trust vs will, and more about legal family issues.