First and Third Party Special Needs Trusts

Types of Special Needs Trusts

There are two main types of SNT, depending on whose assets are used to fund the SNT: “First Party” (also known as a “Self-Settled” trust) and “Third Party” trusts. While both protect assets and eligibility, there are significant differences.

A First Party SNT can be established for the benefit of a person under the age of 65 by that person or by her or his parent, grandparent, guardian or court order and is funded with assets belonging to the person who is disabled.  In contrast, a Third Party SNT is established and funded by some other person, most often by a parent, either during the parent’s lifetime or upon the death of the parent.  There are other significant differences, including the requirement that assets in the First Party trust on hand when the beneficiary dies must be “paid back” to the local Medicaid agency. In that instance, the agency is reimbursed for benefits paid for the beneficiary who is disabled before the beneficiary’s heirs can inherit.

In addition to the First Party and Third Party trusts, there is a third type of SNT, known as a Pooled Trust.  It is established and administered by a nonprofit organization to receive and manage income of a person with a disability that exceeds the amount that a Medicaid beneficiary may retain. That “excess income” is theoretically required to be contributed to the beneficiary’s cost of care but can be protected by transferring it to the pooled trust.  Such income can be used by the trustees of the pooled trust to pay for the beneficiary’s expenses not covered by Medicaid, thus avoiding the “spend down.”

Contact us at Pierro, Connor, & Strauss LLC.

To determine which trust might be best, reach out to our special needs planning attorneys today. From our offices in Albany, the Capital Region, New York City, and surrounding areas our trust lawyers are knowledgeable and experienced in the complexities of SNTs.