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

In Michigan, as in other states, First-Party Special Needs Trusts and Third-Party Special Needs Trusts serve as tools to protect a disabled person's eligibility for needs-based government benefits, like Supplemental Security Income (SSI) and Medicaid, while allowing funds to be set aside for their benefit. However, these two types of trusts have different rules and sources of funding.

Understanding these differences can help families choose the right trust to preserve benefits while supporting their loved ones with disabilities.

First-Party Special Needs Trust

• Created using the beneficiary's own assets
• Will be required to pay Medicaid back after their death
• Must be created before the beneficiary is 65 years old
• Can be set up by a parent, grandparent, legal guardian, or the court

Example: A person with a disability receives a large inheritance or a settlement from a lawsuit. To protect their eligibility for benefits, they can place the money in a First-Party Special Needs Trust.

Third-Party Special Needs Trust

• Created using assets from someone other than the beneficiary
• No Medicaid payback is required; assets can go to other heirs
• Can be created at any age of the beneficiary
• Can be set up by anyone other than the beneficiary

‍Example: A parent sets up a Third-Party Special Needs Trust as part of their estate plan to ensure that funds are available for their disabled child's future needs without affecting government benefits.