Can an Individual Create a First Party Special Needs Trust for His or Her Own Benefit?
A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is a trust created for a disabled beneficiary to hold funds in a way that preserves his or her eligibility for public benefits.
There are three types of special needs trusts:
- A first party special needs trust is one that is funded with assets that belong to the trust’s beneficiary, such as an inheritance the beneficiary receives outright from a well-meaning relative.
- A third party special needs trust is one that is funded with assets that do not belong to the trust’s beneficiary. For example, a parent of a child with special needs can create a trust and make periodic gifts to it or direct that an insurance policy funnel into it upon the parent’s death.
- A pooled trust is one established by a non-profit organization. Those who wish to join the pooled trust sign a joinder agreement, which dictates the trust’s terms, and then transfer assets into their own sub-account with the pooled trust. The pooled trust pools all the funds for purposes of investment and management, with the goal of maximizing return on investment and reducing costs of administration and management. A pooled trust account can be created with funds that belong to the beneficiary (first party trust) funds that don’t belong to the beneficiary (third party trust).
Until recently, individuals with special needs could not create special needs trusts for their own benefit. That’s because the law as originally written authorized only a parent, grandparent, guardian, or court to establish a first party special needs trust. As a result, even mentally competent disabled beneficiaries could not create one for themselves, even though it was still possible for them to create a pooled first party special needs trust for themselves.
That all changed on December 13, 2016. The Special Needs Trust Fairness Act, signed by President Obama on that day as part of the 21st Century Cures act, now empowers mentally competent individuals with disabilities to create special needs trusts for their own benefit, rather than requiring them to rely on others to advocate for their needs.