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How Do First And Third-Party Trusts Differ?

When you have a special-needs family member, planning for their future care may help you ensure that you can meet all of their medical, financial and personal needs, even after you pass on. Establishing a special needs trust is one of the most effective ways to do so.

The Special Needs Alliance notes that the two types of trusts, first-party and third-party, each have differences that may affect how the beneficiary receives it. If you plan to create a trust for a special-needs family member, then you may want to review the differences between the two so you choose one that best suits your family’s situation.

First-party trusts

If your loved one receives government assistance for a disability, then creating a first-party trust could protect him or her from losing any of that aid. Money received as a result of a change in circumstances may affect their qualifications, including:

  • A divorce settlement
  • A personal injury awarded by the courts
  • An inheritance

Using these funds to fill a special-needs trust can protect your disabled loved one in the future and safeguard his or her ability to receive continued government assistance.

Third-party trusts

Unlike first-party trusts, which receive their funds through benefits and awards given to the beneficiary, a third-party trust receives funding from other individuals. This may include funds from you and your family members, such as attaching the creation of the trust upon the death of a grandparent. You may include this action while estate planning as well, as it may help you avoid probate court.

No matter which trust you create for your special-needs family member, planning it with care and attention to future issues, such as trust taxes, may cause fewer problems for the beneficiary.

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