Choosing the Right Trust: Comparing 1st Party vs. 3rd Party Supplemental Needs Trusts
Supplemental Needs Trusts (SNTs) offer financial support to individuals with special needs. This article examines the differences between 1st party vs. 3rd party supplemental needs trusts, including their benefits and drawbacks.
1st Party Supplemental Needs Trust
A 1st party SNT is funded by the beneficiary’s assets. It protects those assets while maintaining government benefits eligibility. These are often used when a disabled person receives a lawsuit settlement. The trust is used to make sure that the settlement proceeds don’t disqualify the recipient from receiving benefits.
However, this type of SNT can only be used for the beneficiary’s benefit and requires repayment of government benefits upon the beneficiary’s death. The benefits must be repaid because the beneficiaries funds could have been used to pay for medical expenses if they weren’t put into the trust.
3rd Party Supplemental Needs Trust
A 3rd party SNT is funded by someone other than the beneficiary. It is often used when drafting wills where the beneficiary under a will receives the inheritance through a SNT if the beneficiary is a supplemental needs person.
This type of trust is often preferred because it doesn’t require repayment of government benefits after the beneficiary’s death. Government benefits aren’t required to be repaid because the funds in the trust never belonged to the disabled person.
This allows the trust to be used more broadly since it isn’t restricted by Medicaid rules. However, since this type of trust is uses another person’s money, it can’t be used to protect the beneficiary’s assets.
Which Type of SNT is Right for You?
When choosing between a 1st party and a 3rd party SNT, consider the beneficiary’s needs and the family’s financial situation. Each SNT has unique benefits and drawbacks, making the choice dependent on individual circumstances.
Understanding the differences between 1st party vs. 3rd party Supplemental Needs Trusts is crucial. Consult a qualified attorney to determine the most suitable SNT for your loved one with special needs.
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