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Wednesday, 17 October 2018 10:23

Special Needs Trusts: First-Party vs. Third-Party

The following is a continued encapsulation of our conversation with Jaclyn Berry, head of the special needs team within our Distinctive Care Division, focused on examples of the two primary types of Special Need Trusts (First-Party and Third-Party) and how they can be the right fit for families in a variety of ways.

First-Party SNTs are trusts established for an individual with an intellectual or developmental disability to protect that individual’s eligibility for state need-based funding, often as a result from litigation.

Examples of cases that could benefit from a First-Party SNT:

  • Scenario One: A child is born with developmental or intellectual delays caused by medical malpractice. The family sues the doctors and hospital, which results in a large settlement that the family is unsure how to manage.
  • Scenario Two: A married couple, with one spouse having a disability and unable to work, decides to divorce. If that spouse is utilizing public benefits, a First-Party SNT could be set up through the divorce settlement.

A Third-Party SNT operates similarly to a First-Party SNT, but a Third-Party SNT is always set up by a donor, typically through an estate plan. Often, the trust goes into effect when the donor passes away and continues helping the beneficiary manage his or her inherited estate. When the beneficiary passes away, the assets from his or her Third-Party trust can be passed to other family members or wherever else he or she chooses.

Examples of cases that could benefit from a Third-Party SNT:

  • Scenario One: The elderly parents of an adult child with a disability are nearing the end of life and want to protect their child’s eligibility for Medicaid and other essential need-based government funding, while allowing the trust they established for the child to go into effect after they pass.
  • Scenario Two: The parents of a grown child with a mental illness have cared for their child for years, but need help managing affairs as they age.
  • Scenario Three: A parent with a child who has drug and alcohol addiction wants to ensure that the daughter is cared for and has assistance managing her finances after the parent dies.

Both First-Party and Third-Party trusts are served carefully and comprehensively by Cumberland Trust. We have become a national leader in this space due to our willingness to commit the time and energy to service SNTs properly to the benefit of the individuals and families involved.

More from Cumberland Trust

Our SNT team

How Cumberland Trust works with SNTs

What a SNT provides