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Estate Planning: First party special needs trusts
Special needs trusts (“SNTs”) preserve the beneficiary’s eligibility to receive needs-based government benefits, such as SSI and Medi-Cal.
These benefits are jeopardized when an individual receives a gift or inheritance because the individual then exceeds his or her maximum allowed resources (countable assets).
First party SNTs (unlike third party SNTs) are funded with assets belonging to the special needs beneficiary. Funding the SNT preserves eligibility.
Until Jan. 1, 2017, federal law required a first party SNT to be established by the beneficiary’s own parent, grandparent or guardian, and otherwise by court order.
Due to an oversight in the originally enacted law, the beneficiary could not establish the trust him or herself.
Effective Jan. 1, 2017, individuals under age 65 years themselves can establish their own first party SNT.
Now, provided a person is under age 65 and has the capacity to sign the first party SNT, a person can avoid the extra difficulties involved with a court proceeding when no parent or grandparent of the beneficiary is alive and able to establish the first party SNT.
Individuals who lack the capacity to sign their own first party SNT, however, must still rely on a third party or a court order to establish their first party SNT.
That said, however, there are many individuals receiving needs based government benefits who still have the mental capacity to sign a trust document.
Once established a first party SNT is then funded with assets belonging to the beneficiary that would otherwise disqualify them from SSI or Medi-Cal.
The trustee, someone other than the beneficiary, has full discretion over whether, when and how to use such assets for the benefit of the special needs beneficiary.
With a first party SNT – unlike with a third party SNT – any assets that remain after the SNT beneficiary dies is subject to required pay-back provisions for Medi-Cal Estate Recovery claims.
But with a third party SNT – one established and funded by someone other than the SNT beneficiary (usually the parent) – whatever assets remain are not subject to such recovery claims after the SNT beneficiary dies because these assets never belonged to the special needs beneficiary. These remaining assets usually go to other family members.
The purpose of any SNT is to use the SNTs assets to pay for goods and services that would otherwise go unmet – i.e., the comforts and extras of life – and yet preserve the beneficiary’s eligibility to receive needs based government benefits.
These needs-based government benefits pay for the necessities of life, including food, shelter and medical care.
Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and 707-263-3235. His Web site is www.DennisFordhamLaw.com .
