First-Party vs. Third-Party Special Needs Trusts

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Special needs trusts (SNTs) allow families to ensure the financial security of their relatives who live with a disability. SNTs are particularly beneficial for those who cannot live independently or earn an income, as they provide a steady stream of income to pay for medical treatment and live-in care.

There are two main types of SNTs: first-party SNTs and third-party SNTs. Learn the difference between the two to determine which is right for your unique situation.

What is a First-Party Special Needs Trust?

First-party SNTs help individuals who deal with a disability caused by some type of injury. First-party SNTs are funded by the disabled individual's own funds and are used for their own benefit and use.

First-party SNTs allow the injured beneficiary to move their settlement and assets into the trust to help pay for future expenses while maintaining their eligibility for needs-based government services and programs including Medicaid and Supplemental Security Income (SSI).

The beneficiary of a first-party SNT may use the funds in the trust for a variety of services of their choosing, including nursing care, medical needs, dietary needs, therapies, and more.

What is a Third-Party Special Needs Trust?

Third-party SNTs provide financial stability for individuals living with special needs who, typically, cannot live on their own or earn an income. The main difference between a first-party SNT and a third-party SNT is a first-party SNT is funded by the beneficiary with their own funds, while a third-party SNT is funded by a family member or other third party for the benefit of the disabled individual (the beneficiary).

Oftentimes, a third-party SNT is established as part of a donor’s estate plan to aid the special needs individual while the donor is still alive and after they pass away.

A third-party SNT has several benefits, including the following:

  • There is no limit to the number of assets in the trust.
  • Funds in the trust can be used for anything the beneficiary needs.
  • The trust will not impact the beneficiary’s eligibility for government benefits.
  • The government has no claim to the assets in the trust, such as reimbursement for Medicaid payments.

Why Establish a Special Needs Trust?

It’s never too early to begin planning for your loved ones’ futures. If you have a relative who lives with special needs, establishing an SNT is a vital component of any estate plan you create.

If disabled beneficiaries inherit money from a deceased relative in a form other than an SNT, the government may lay claim to the funds in their inheritance, leaving less money for the beneficiary to use for medical care.

Additionally, the beneficiary may disqualify for needs-based government programs including Medicaid and SSI when the funds are not allocated to them through an SNT. An SNT is one of the only ways to ensure your disabled relative continues to qualify for the government assistance they require.

Establishing an SNT can give you peace of mind knowing your disabled relative has the financial resources they need to receive the care they require.

Interested in Establishing a Special Needs Trust? Contact Us Today

If you’re interested in establishing an SNT for your loved one who lives with a disability, our team at Legacy Enhancement Trust is here to help. We specialize in this area of financial planning, and we know how to work with Medicaid and SSI to your benefit.

We offer the same professional trust management as larger entities with a level of personalized care and low fees that larger corporations cannot match.

Contact us online or by phone today at (888) 988-5503 to learn how we may assist you!

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