First Party Special Needs Trust
How To Protect The Government Benefits of a Disabled Loved One Who Received a Sum of Money from a Lawsuit or Inheritance
Benefits of a First Party Special Needs Trust
- Protect a disabled person from losing their government benefits like SSI, Medicaid, subsidized housing, and vocational rehab
- Supplement a special needs person’s government assistance to provide care and services that their benefits do not cover so they can have a comfortable lifestyle
- Appoint someone you trust to manage the finances on behalf of the disabled beneficiary to make sure they are taken care of without being disqualified from their benefits
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Why Do You Need a First Party Special Needs Trust?
It’s not uncommon for a person with special needs to qualify for public benefits like Supplemental Security Income (SSI) and Medicaid.
But these types of government assistance programs are “means-tested” which means that eligibility for these benefits is restricted based on the disabled persons income and financial resources.
Unfortunately, these eligibility restrictions can cause a person with special needs to lose their much-needed government assistance if they receive a large sum of money in the form of an inheritance or an award from a lawsuit.
But there is a solution…
What is a First Party Special Needs Trust?
A first party trust is a type of Special Needs Trust that can be established for a person with special needs, also known as the beneficiary of the trust, in order to protect their eligibility for government benefits.
This type of trust is funded with money and assets that belong to the beneficiary. The assets held in the trust are used for the benefit of the disabled beneficiary generally are not counted against their ability to qualify for benefits.
What are the Benefits of a First Party Special Needs Trust?
- Protect a disabled person from losing their government benefits like SSI, Medicaid, subsidized housing, and vocational rehab
- Supplement a special needs person’s government assistance to provide care and services that their benefits do not cover so they can have comfortable lifestyle
- Appoint someone you trust to manage the finances on behalf of the disabled beneficiary to make sure they are taken care of without being disqualified from their benefits
When Do You Need a First Party Special Needs Trust?
There are a number of ways a person with special needs might directly receive money or property that could hurt their ability to qualify for government assistance if the money is not placed in the proper type of trust:
- Personal injury award
- Inheritance
- Life insurance policy
- Retirement plan
- Divorce settlement
Among the most common scenarios that result in a disabled individual receiving a large sum of money is from a lawsuit over an injury that resulted in their disability.
It’s also very common for a well meaning relative to leave behind a direct inheritance for a loved one with special needs, not knowing that the inheritance needs to be directed into a special needs trust in order to avoid hurting their disabled family member’s benefits.
Schedule a free consultation with an experienced Special Needs Trust Attorney today! Call us now at (248) 613-0007
How Does a First Party Special Needs Trust Work?
A first party special needs trust is a type of irrevocable trust. Because the trust is irrevocable, it is permanent and can’t be reversed.
These types of trusts are very complicated and there is a lot at stake if the document is drafted improperly. As a result, you should always use the services of an experienced Special Needs Trust Attorney.
To better understand how the document works, let’s take a closer look at some of the key parties named in the trust…
Settlor/Grantor
This is the person who creates the trust. Generally, it is also the person whose assets fund the trust. The money that the trust is funded with is used to supplement the special needs beneficiary’s lifestyle.
Beneficiary
The beneficiary is the special needs individual for whom the trust is being set up to benefit.
Trustee
The trustee is the person who is responsible for managing all of the assets in the trust and making distributions for expenses on behalf of the beneficiary. This role is extremely important and it requires a lot of attention to detail in order to ensure that the trustee isn’t spending money on expenses that could disqualify the beneficiary from their government assistance programs.
How does the beneficiary access the money in a First Party Special Needs Trust?
In order to ensure that the beneficiary does not get disqualified from their assistance, the funds in the trust can’t be accessed directly by the beneficiary.
Instead, the money needs to go through the trustee to pay for additional expenses to supplement the disabled individual’s lifestyle.
As you can see, the trustee has a very important role.
Not only should they be someone who is trustworthy, they should also be someone who is responsible, diligent, and has attention to detail in order to make sure that the purchases they make on behalf of the beneficiary will not disqualify them from their benefits.
What Happens To a Self-Settled Trust after the Disabled Beneficiary Passes Away?
A first party special needs trust is considered a self-settled trust. This means that since the trust was funded with money that the disabled beneficiary owned, the trust will contain a payback provision directing the trustee to use the remaining funds in the trust to payback any Medicaid benefits that were used while the beneficiary was living.
What's the Difference Between a First Party and Third Party Special Needs Trust?
One of the key distinctions between a first party special needs trust and a third party special needs trust is that the first party special needs trust is funded with money and assets the beneficiary owns or is entitled to.
The third party special needs trust is funded by money and assets that never belonged to the special needs beneficiary. Typically, these types of trusts are created by a parent or grandparent to leave an inheritance for a special needs family member without hurting their benefits.
Additionally, a first party special needs trust will contain a payback provision after the beneficiary passes away. A third party special needs trust does not contain a payback provision because the beneficiary never owned the assets that were used to fund the trust.
How Do I Set Up A First Party Special Needs Trust?
If you need to create a first party trust, it is best to schedule an initial consultation with an experienced Special Needs Trust Attorney. These types of trusts are very complicated and you can hurt your loved one’s benefits if it is set up improperly.
Everyone’s situation is unique. This article covered a lot of the basics of a first party special needs trust, but the best way to get customized information based on your specific situation is to speak with a professional who can make sure your disabled loved one is properly protected.
At Rochester Law Center we’ve helped 1,000s of clients protect their families with comprehensive estate planning. Give us a call today to schedule a complimentary consultation with one of our experienced Special Needs Trust Attorneys. Call us now at (248) 613-0007.
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Written By Chris Atallah - Founder, Rochester Law Center, PLLC
Written By Chris Atallah - Founder, Rochester Law Center, PLLC
Chris Atallah is a licensed Michigan Attorney and the author of “The Ultimate Guide to Wills & Trusts – Estate Planning for Michigan Families”. Over that past decade, Chris has helped 1,000s of Michigan families and businesses secure their futures in all matters of Wills, Trusts, and Estate Planning. He has taught dozens of seminars across the State of Michigan on such topics as avoiding the death tax, protecting minor children after the parents’ death, and preserving family wealth from the courts and accidental disinheritance. If you have any questions, Chris would be happy to answer them for you – just call at 248-613-0007.
