If you are a disabled person, you may qualify for government benefits, such as Medicaid or Supplemental Security Income (SSI). However, the government will not provide Medicaid or SSI unless you meet certain asset qualifications. Generally, you must have very few assets in your name. If your assets are over the qualification threshold, you can either spend down your assets or create a Special Needs Trust. In particular, the type of trust you would need to create to maintain your assets and qualify for Medicaid, SSI, and other benefits would be a First Party Special Needs Trust.
What is a First Party Special Needs Trust?A First Party Special Needs Trust is a trust established using the funds of the special needs person for the benefit of the special needs person. Special Needs Trusts are specifically designed so that the assets held in trust will be considered an exempt for purposes of qualifying for Medicaid and SSI. In other words, by setting up a First Party Special Needs Trust, a disabled individual is able to have access to their own funds and still qualify for government benefits. The prime reason why the government allows First Party Special Needs Trusts is because when the special needs person dies, whatever is remaining in the trust must be used to pay back any Medicaid expenditures that have been made over the lifetime of the person. A First Party Special Needs Trust should not be confused with a Third Party Special Needs Trust. Generally, a First Party Special Needs Trust is funded with the assets of the Disabled person (usually because the Disabled person inherits money or receives money as the result of a Personal Injury lawsuit). A Third Party Special Needs Trust is funded with the assets of anyone other than the beneficiary of that trust. Please read my post for a complete overview of the differences between special needs trusts.
Who Can Be a Beneficiary of a First Party Special Needs Trust?In order to establish a First Party Special Needs Trust for a person, that person must be a disabled individual under the age of 65 years. Importantly, this type of trust must only be used for the sole benefit of the Disabled person who funded the trust.
Administration of a First Party Special Needs TrustSpecial Needs Trust Administration of all Special Needs Trusts can be very complex because those trusts are limited in what they can pay for by statute. Special Needs Trusts can generally not pay for food, shelter, electricity, gas or water and it may not pay for anything that can be converted into food, shelter, electricity, gas or water. Additionally, cash should almost never be distributed to a beneficiary from the trust and there are special rules about a trust owning a home.
Creating a First Party Special Needs TrustWho can create a first party special needs trust varies slightly based upon where you live and your particular situation, but usually it can be established by the Disabled person themself if they are competent, or a judge, a court-appointed guardian for the special needs person, the parent of a special needs person, or the grandparent of a special needs person. Note, a recent change in the law finally allows the beneficiary to actually create a trust for himself or herself. This is important because sometimes people don’t have a relative to create the trust for them and they were forced to go to Court to establish the trust. Remember, there are many types of disabled individuals who can qualify for government benefits. The old rules prevented physically handicapped, but mentally competent individuals, from establishing their own trusts.
Other Names for First Party Special Needs TrustsFirst Party Special Needs Trusts are also frequently called Self Settled Special Needs Trusts, Supplemental Benefits Trusts, or “(d)(4)(A) Trusts” because the provision to allow the creation of these trusts can be located in Social Security Act, Section 1396p(d)(4)(A).
Finding a Special Needs Trust AttorneyLike many areas of the law, special needs trust planning requires exceptional knowledge and experience in handling such matters. Mistakes in this field can cause a disabled individual to lose their government benefits. Kevin Pollock is the attorney in charge of the firm’s Special Needs Planning Department. Attorney Kevin Pollock has focused on Wills, Trusts & Estates since 2000 when he received his master’s degree in taxation.