Types of Special Needs Trusts
First Party Special Needs Trust
A first party special needs trust is funded with assets and money already belonging to a disabled individual, or with assets subject to a legal claim by this individual. Since setting up this trust will require moving funds from the individual’s control to the control of a trustee, an application must be made for authorization to transfer the funds via the court. The fund must be established by a family member, a guardian or the court. After the individual’s death, Medicaid will be paid back from the trust for services that were provided, but the “payback” provision limits Medicaid to the amount that is remaining in the trust. If there are any funds remaining after the reimbursement to Medicaid, they will pass on to the beneficiary’s heirs.
Third Party Special Needs Trust
Also known as a “supplemental needs trust,” a third party special needs trust may be established by anyone other than the disabled individual with funds separate from the funds owned by the disabled individual; these funds remain outside that person’s control. The structure of this fund is set up so that others may financially assist the beneficiary without interfering with Medicaid benefits. The funds in this trust often come from a will or life insurance, or by the judgment of the court, and are not subjected to the “payback” requirement of a first party trust.
While both third party and first party trusts will provide benefits to the beneficiary, they are established and funded differently. It is important to work with an experienced Hook Law Center trust attorney to best determine the trust to ensure protection for your loved one.