FAQS Special Needs Trusts
Special Needs Trusts protect the financial well-being of your loved one with special needs. Many of the questions we hear frequently are answered below.
A Third Party Special Needs Trust is used to hold assets for a person with disabilities that are set aside by other family members – usually the person’s parents. The individual never “owns” the money directly, and does not have access to the funds. Typically, parents create a Third Party Trust for a child and then fund the trust with cash, stocks, bonds, life insurance or other assets left through their estate plan when they die.
A First Party Trust – sometimes called a “Payback Trust” – is designed to hold assets that are owned by an individual with disabilities. These funds might include a personal injury award, or gifts and inheritances from family that were given directly to the individual. A First Party Trust can only be created by a parent, a grandparent, a guardian or a court.
Trust assets in either type of trust can be used for the benefit of the individual in many different ways, including special classes, hobbies, luxury items, personal services, professional fees, furniture, computers, vacations, transportation, and second opinions on medical treatment, to name a few.
The major difference between a Third Party Special Needs Trust and a First Party Special Needs Trust is what happens to any assets left over in the trust after the person with a disability dies.
In the case of a Third Party Trust, funds remaining in trust after the person dies are distributed to people or charities selected by the parents when they created the trust. Typically, the remaining funds go to other siblings, or charitable organizations providing disability-related services to your child.
In contrast, any assets remaining in a First Party Special Needs Trust must be paid back to the government in order to reimburse various government agencies who have paid for care over the course of your child’s life. Moreover, unlike a Third Party Special Needs Trust, a First Party Trust is also subject to more stringent federal and state reporting requirements.
Because of the payback and reporting requirements, a First Party Trust should only be used if a Third Party Trust is not available.
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Willi Law Firm, P.C.
9600 Escarpment Blvd.
Ste. 745, PMB 34
Austin, TX 78749-1983
Main: (512) 522-0906
Facsimile: (512) 288-3202
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The attorneys at Willi Law Firm are your Austin, Texas resource for estate planning, wills, living trusts, firearms trusts, powers of attorney, living wills, probate and estate administration, trust administration, special needs trusts, disability planning, Medicaid applications and qualification, long-term care planning, elder law, Medicaid crisis planning, charitable planning, estate tax planning, business and corporate planning, business succession and sales, and asset protection.
Willi Law Firm proudly serves Central Texas individuals and families in the following counties: Bastrop, Blanco, Burnet, Caldwell, Hays, Lampasas, Lee, Travis, and Williamson, and in the following communities: Austin, Bastrop, Brushy Creek, Buda, Burnet, Cedar Park, Driftwood, Dripping Springs, Elgin, Georgetown, Hutto, Jollyville, Kyle, Lakeway, Lago Vista, Lampasas, Leander, Lockhart, Luling, Manchaca, Manor, Marble Falls, Oak Hill, Pfugerville, Rollingwood, Round Rock, San Marcos, Shady Hollow, Spicewood, Taylor, Wells Branch, Westlake, Windemere, and Wimberley.