A first party special needs trust is a type of trust that could be used by someone who is disabled. People with disabilities often rely on government benefits that are only available to people who can prove that they have financial need. One of them is Medicaid, which is a government run health insurance program. It is jointly administered by the federal government along with each state government.
Another government benefit that is based on financial need is called Supplemental Security Income or SSI. This is a program that can provide income for qualified disabled individuals.
Sometimes a person with a disability will have his or her own financial resources. These assets could come from personal earnings prior to disability, they could come from a personal injury settlement, or they could come from an inheritance or from life insurance proceeds.
A legal guardian, parent, or a grandparent could create a first party special needs trust and fund the trust with these assets. The person with a disability would be the beneficiary of the trust.
A trustee that is named in the trust declaration would be empowered to administer the assets in the trust. The beneficiary could not directly control the assets.
Government benefits pay for certain things, but they do not necessarily cover all of the needs of recipients. Under benefit program rules, when a first party special needs trust has been established, the trustee can use assets in the trust to satisfy these unmet needs. As long as the expenditures are within the guidelines, eligibility for the benefits would not be lost.
However, you have to be aware of Medicaid reimbursement. After a first party special needs trust has been created, the Medicaid program will seek recovery from the estate of the beneficiary after his or her death.
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You should certainly have a thorough understanding of government benefit program rules and regulations when you have a person with special needs in the family. As you may imagine, these rules are rather complex, so there is a learning curve.
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