First Party vs. Third Party Special Needs Trusts
A special needs trust is essential if someone is disabled physically or mentally and has money gifted to him or otherwise acquires assets. It is common for a disabled person to have relatives or friends who want to make sure he or she is cared for and has the best quality of life possible. Parents and other relatives may wish to leave assets to the disabled person in order to provide for care and enrich the disabled person’s life. A person may also become disabled as a result of an accident and may be awarded a significant sum of money in an injury claim.
There are a few problems which can arise when someone with special needs gets a financial gift, a large inheritance, a big settlement, or otherwise comes into money. One of the most important issues is the threat that government benefits will be lost. Medicaid may be providing for the treatment of the individual’s disabling medical condition, which can be quite costly. Supplemental Security Income (SSI) may also be providing monthly income to the disabled person. Both SSI and Medicaid are means-tested, so if the disabled person owns a lot of assets then eligibility for benefits programs could be lost. Another equally serious issue relates to the ability of the disabled person to effectively manage money and assets. Without the ability to make and carry out informed decisions on property and asset management, the value of the acquired property could be quickly lost.
All of these issues can be addressed with the creation of special needs trusts. However, there are different kinds of special needs trusts including first party and third party trusts. You need to understand what type of trust is best and ensure that you have followed all of the legal protocols necessary for the creation of a special needs trust. A Cincinnati special needs planning lawyer at Zimmer Law Firm can provide invaluable assistance to those who want to help a disabled person by giving him a financial gift or assisting in securing and carefully managing assets he has otherwise acquired.
Differences Between First Party and Third Party Special Needs Trusts
There are two primary types of special needs trusts which could be created: a third party special needs trust and a first party special needs trust. When creating either type, it is imperative to follow all specific requirements for trust creation so the disabled person does not lose access to benefits or face other consequences.
Third party special needs trusts are very common, and are usually created by family members to leave assets to a relative with special needs. The property which is transferred into the trust comes from the family member and is owned by the trust after the transfer. The trust is often funded when the trust creator passes away. The trust could be designated as a life insurance beneficiary, for example, or money and assets could be transferred to the trust in a last will and testament. The money in the third party special needs trust is not owned by the disabled person at any point. It goes right from its original owner to being owned by the trust.
A trustee is named when a third party special needs trust is created, and instructions are provided by the creator of the trust for what the money should be used for. The money can be used in many different ways to provide support and enhance the quality of life of the disabled person. However, the money from the trust can’t be used for anything that would affect eligibility for benefits. This means that the trustee could not take money out of the trust and make a cash gift to the disabled person. Typically, money in the trust is used to provide experiences or things for the disabled person, such as a trip or a special class or electronic items or other possessions the disabled person likes. The beneficiary of the trust does not have access to the funds within the trust at any point, and isn’t responsible for managing trust assets; the trustee takes care of the assets.
A first party special needs trust differs from a third party special needs trust because it is created using money or property the disabled person acquires. If the disabled individual gets an insurance payout, money from a divorce settlement or money from any other source, the assets can be transferred to a first party special needs trust so they won’t affect eligibility for ongoing benefits.
How A Cincinnati Ohio Special Needs Planning Lawyer Can Help
A Cincinnati Ohio special needs planning lawyer can provide assistance with creating either a first or third party special needs trust. Give us a call at 513.721.1513 or join us for a free seminar to learn more.