If you have a loved one with special needs, you probably want to do whatever you can to keep them safe now and in the future. One of the things you’d like to do is to set up a trust for them, so that they can be well cared for.
There are two types of special needs trusts you can choose from including a first-party and third-party special needs trust. A third-party trust is the most common when you’re planning in advance for your loved one with special needs. This typically created by parents or grandparents for their children or loved ones with special needs. Anyone is able to establish this trust for the benefit of a person with special needs.
A third-party trust will be able to be included in the parent’s or other party’s Last Will and Testament as well as held within a living trust. Doing this allows the special needs trust to avoid probate. Special needs trusts can also be stand-alone trusts established and funded with insurance or assets upon the parent’s death.
What is a first-party special needs trust?
First-party special needs trusts are different because the person funding the trust is the person with special needs. The person may be inheriting money directly or receiving property upon a loved one’s death. The special needs trust formed this way can only be used for the benefit of the beneficiary directly. This form of trust may also only be funded by someone who has already met the government’s definition of disabled and who is under the age of 65 when the trust is funded and established.
While a first-party SNT can help people obtain benefits during their lifetime, it’s important to know that any remaining trust assets will be used to pay back Medicaid programs upon the disabled party’s death. Assets that remain after the payback of those programs can be distributed to beneficiaries, but assets cannot be protected against the payback when using this form of trust. For this reason, a third-person trust is a much better choice when it’s possible to set one up for a loved one with a disability.
If you have a loved one with a disability, planning in advance can help you eliminate the risk of them losing assets to Medicaid or other support programs. This helps your loved one build wealth and live comfortably, potentially having assets to pass on when they pass away as well.