First Party Special Needs Trusts are vehicles that can be created to support an individual who is disabled and seeking Social Security disability payments and other governments benefits such as health care. To establish this type of trust, a parent or conservator of the beneficiary, or a court order, must set up a seed trust to which the qualifying assets of the disabled individual may be transferred. However, a seed trust established by an otherwise qualifying party will be rendered invalid if created while the party is acting in another capacity, for example, a person acting as an agent under power of attorney rather than in their role of parent. In addition, the trust must use any remaining assets when the trust ends to repay all government entities that provided financial or medical support to the disabled person during their lifetime. This has been a problem for many trust since their terms called for repayment to Social Security but not to the state medical programs that provided treatment and care. Lastly, newly tightened regulations now require the trust to be used solely for the care of the beneficiary; no longer can the trust pay for family members to travel for visits or provide care to beneficiary unless they are approved or specially trained to provide the type of care being given. But one small grace has been granted, the Social Security Administration will not go after previously approved trust, even those that fall foul of the new regulations, unless an event occurs that requires re-authorization which will provide some measure of relief. Disability advocacy groups have been displeased with these new rules and are lobbying the SSA to pull back on the newly tightened regulations so, perhaps, some changes can be expected in the future.
See Dennis A. Fordham, Upheaval in the world of First Party Special Needs Trusts, Wealth Strategies Journal, January 11, 2016.
Important comment provided by Marjorie Suisman (shareholder, Davis, Malm & D’Agostine, P.C.):
I believe that this post and the linked article contain incorrect information about state payback provisions. The states are entitled to recoup the medical assistance benefits they pay out from a “First Party SNT”, and the trust must so provide, but there is no requirement that SSI benefits be repaid. If a disabled person has assets, they do need a First Party SNT in order to qualify for SSI, but the payback requirement only applies to medical assistance paid out by the States.
