What is the Difference Between a First Party Special Needs Trust and a Third Party Special Needs Trust?
There are unique estate planning considerations for people who have children or other close loved ones with special needs. Special needs trusts can help protect a person’s eligibility for needs-based public benefits while preserving money for supplemental support. There are two types of special needs trusts:
- First party; and
- Third party.
A key distinction is whether the trust is funded with the beneficiary’s own assets or with assets that belong to someone else. Here, our St. Petersburg special needs planning lawyer explains the difference between a first party special needs trust and a third party special needs trust in Florida.
First Party Special Needs Trusts are Funded With the Beneficiary’s Own Assets
The beneficiary of a special needs trust is a disabled or otherwise vulnerable person. A first party special needs trust is funded with assets that already belong to the person with special needs. In Florida, these trusts often become necessary after a personal injury settlement, medical malpractice recovery, inheritance received outright, divorce-related payment, or accumulated savings. Without proper planning, those assets could push the beneficiary over the financial limits for needs-based benefits such as Supplemental Security Income (SSI) or Medicaid. If a special needs person ends up with money in their name, they can often best protect it with a first party special needs trust.
Note: Federal law authorizes a first party special needs trust under 42 U.S.C. § 1396p(d)(4)(A). The trust must be established for a disabled person under age 65 by the beneficiary, a parent, a grandparent, a legal guardian, or a court.
First Party Trusts Require Medicaid Payback
The most important limitation of a first party special needs trust is the Medicaid payback requirement. When the beneficiary dies, the trust must reimburse the state Medicaid agency for medical assistance paid on the beneficiary’s behalf, up to the amount remaining in the trust. Only after that reimbursement can any remaining funds pass to other named remainder beneficiaries.
A Third Party Special Needs Trust is Funded By Someone Else (Can Be Anyone Else)
A third party special needs trust is funded with assets that never belonged to the beneficiary. Parents, grandparents, siblings, or other loved ones can create and fund the trust through a will, revocable living trust, life insurance designation, retirement planning, or lifetime gift. The goal is to support the beneficiary without giving them direct ownership of the assets.
The Big Advantage: A properly drafted third party special needs trust generally does not require Medicaid payback. These trusts are often better for long-term estate planning. The trustee can use funds for supplemental needs such as therapies, transportation, education, recreation, technology, travel, personal care, and other quality-of-life expenses that public benefits may not cover.
Call Our St. Petersburg Special Needs Trust Planning Lawyer Today
At Fisher & Wilsey, P.A., our St. Petersburg special needs planning attorney is a compassionate, experienced advocate for clients. If you have any questions about first party or third party special needs trusts, we can help. Please do not hesitate to contact us today for a fully confidential consultation. We provide special needs planning services in St. Petersburg, Pinellas County, and throughout the broader region in Florida.
Source:
law.cornell.edu/uscode/text/42/1396p
