When Is a First-Party Special Needs Trust Useful?

special needs trust
If you’re the parent of a special needs child, you probably know how important it is to set up a special needs trust for his or her future care. And you probably also know that there are two different kinds of special needs trusts: first-party and third-party.
While third-party trusts are generally recommended, there are some situations in which a first-party trust may be more appropriate.

What Is a First-Party Trust?

First-party trusts essentially function the same way as third-party trusts. Their purpose is to financially protect people who currently (or expect to in the future) qualify for government benefits. Both types of trusts provide a way to cover supplemental expenses that aren’t covered under Supplemental Security Income (SSI) or similar government programs, allowing the trustee to distribute funds for things like education and hobbies.
However, there are some major differences between first-party and third-party trusts. Let’s take a look at some of the things that make a first-party trust unique.

  • It must be “irrevocable” (meaning it can’t be changed).
  • It must be set up by a parent, grandparent, legal guardian, or the court.
  • It must be funded with the beneficiary’s own assets.
  • The beneficiary must be younger than 65 when the trust is set up.
  • Medicaid must be reimbursed upon the beneficiary’s death.

When Should You Consider Establishing a First-Party Trust?

The answer to this question centers around the beneficiary’s asset situation. Does he currently have assets in his name that will make him ineligible for government benefits? Or does he expect to receive assets in the future — such as an inheritance, a divorce settlement, or a settlement from another type of lawsuit — that would result in the same disqualification? If so, a first-party trust may be appropriate.
In all the cases above, directing the funds into a first-party special needs trust can protect the beneficiary from losing his SSI and Medicaid benefits. However, this is only true if the trust is drafted properly. It’s essential to have a qualified professional establish the trust fund so that you know your child will be properly provided for.

Questions About Setting Up a Special Needs Trust?

At Alabama Family Trust, we understand your needs. That’s why we offer the highest levels of professionalism, cost efficiency, and management for all special needs trusts for the families we humbly serve. If you have questions about setting up a special needs trust, contact us today!

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Contact Alabama Family Trust via the contact link below to learn more about special needs trust funds.

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