Special Needs Trusts
First-Party Trust (AKA "Self-Settled Special Needs Trust" or D4A Trust)
A First-Party Trust is established and funded by the individual receiving government benefits. This type of trust is often utilized in situations where the individual receives a lump sum of money, such as an inheritance or a personal injury settlement. By placing these funds into a First-Party Trust, the individual can usually maintain eligibility for government benefits like Medicaid and Supplemental Security Income (SSI) without exceeding threshold requirements. The trust is managed by a designated trustee who oversees distributions to supplement the individual's needs beyond what benefits cover.
Third-Party Trust
A Third-Party Trust is created and funded by someone other than the beneficiary receiving benefits. This could be a parent, grandparent, or any other individual trusted to provide long-term care. Since the beneficiary does not own the assets funding the trust, it does not impact eligibility of benefits. The trustee of a Third-Party Trust has the discretion to distribute funds for the beneficiary's supplemental needs throughout their lifetime.
Similarities
Despite their differences in funding source, both types of Special Needs Trusts share common characteristics.
Irrevocability: Once established, both trusts are typically Irrevocable, meaning they cannot be altered or terminated except under specific circumstances. This ensures that the assets held in trust are protected and used solely for the benefit of the individual.
Management: A trustee is appointed to manage trust assets and make distributions in accordance with the trust. This role is crucial in ensuring funds are used to supplement, not replace, government benefits received.
Benefits Planning: Special Needs Trusts are critical for benefits planning, enabling individuals with disabilities to maintain access to government programs such as Medicaid, Veterans benefits, and Supplemental Security Income (SSI). By preserving eligibility, these trusts provide a safety net for ongoing care and support.
Conclusion
By navigating the intricacies of government benefit eligibility and asset management, families can ensure their loved ones will receive the care and support needed throughout their lives.