A Special Needs Trust, (SNT), allows a person to shelter assets in a trust to be used for a disabled person while still permitting that person to receive public benefits.
There two types of Special Need Trusts: a First Party Trust also called 'pay-back trust' and a Third Party Trust.
A First Party Trust is funded with money that belongs to a disabled person who is under 65 years old. Often these trusts are from the winnings of a personal injury or medical malpractice suit. The money in the trust cannot be used to calculate public benefit eligibility. With this type of trust, funds that remain when the beneficiary dies must be paid back to the state.
A Third Party Trust is created from funds from a third party--parents, grandparents or someone who wants to leave funds for an incapacitated person. Like the First Party Trust, the money in the trust cannot be used to calculate public benefit eligibility. Unlike the First Party Trust, there is no payback requirement. When the disabled person dies, the trust can stipulate that any funds remaining in the trust be left to survivors or descendents.
Sometimes clients need both trusts. The disabled person has assets he/she has inherited which need to be transferred into a First Party Trust to preserve public benefits. The parents also need a trust to leave assets to their disabled child so they create a Third Party Trust.
There is another SNT called a Pooled Trust - but we will leave that for another day.