Sometime in third or fourth grade, most of us learned about the order of "person" in the grammarian sense. First-person pronouns are "I", “Me”, “We", and "Us". The first-person-narrative viewpoint is when the author tells her/his own story. The only second-person pronoun is "You", and the narrator or author is talking to the audience, while the audience listens. The third-person pronoun is "He”, “Him”, “She", “Her”, “It” as well as "They” and “Them"; and in this case, both the narrator/author and the audience are completely outside the story, and looking into the story.
Like grammar, Special Needs Trusts, often abbreviated "SNTs", have rules. In grammar, the conjugation of the verb has to match the person and number of the subject. I “am”, but she, he or it “is”, and you, we, or they “are”. We “swim”, but he, she or it “swims”. You get the idea. There are also two types of Special Needs Trusts: First Person and Third Person. Somewhat analogous to grammar, the funding stream for each kind of trust has to match the source indicated in the name of the trust. Since first person means “I”, then a First Person Special Needs Trust for my benefit is funded with my money. This money could be assets that I built up prior to becoming disabled, or it could be money that I inherited, received in a malpractice suit, or money that came from a divorce or other settlement, or otherwise money acquired after the onset of my disability. The distinguishing factor is that the money was, at one time, under my direct, legal ownership. Since direct, legal ownership of more than $2,000 in cash or cash equivalents will preclude me from receiving Supplemental Security Income or Medicaid[i], I permit the funds to be placed in a First Party Special Needs Trust. Now the trust is the legal owner of the money and the trustee, rather than I, manages the assets and the so funds don’t count towards my eligibility for Medicaid.
Since third person means she/he/they, then a Third Party Special Needs Trust for my benefit is NOT funded with my own money, but is instead funded with the money of third parties—for example, money from my parents or my siblings. These could be funds, contributed to the trust during the donor’s lifetime, or the proceeds of an annuity or life insurance death benefit, or an inheritance passed to me at the death of the third party. Any number of third parties can contribute to a Third Party Special Needs Trust for my benefit; but I myself, cannot contribute.
As with some verbs in the English language and in many in other languages where first person endings differ from third person, the ending of a First Party Special Needs Trust is distinctly different from the ending of a Third Party Special Needs Trust. In the case of a First Party Special Needs Trust, my own money, which would have precluded my eligibility for SSI and which Medicaid would have otherwise requested that I spend down, is now not counted because I have had it moved to the trust. If I die, Medicaid has first claim on any assets remaining in my First Party Special Needs Trust. If there is anything further remaining after Medicaid’s share, then that can be passed on to contingent trust beneficiaries. In the case of a Third Party Special Needs Trust, the money is a gift from other people who are not, themselves, receiving either SSI or Medicaid. Thus, any money remaining in this Third Party Trust, after I die, is passed directly on to contingent beneficiaries. Medicaid has no claim on those assets. If first-party money is commingled in a third party trust, then the entire trust corpus becomes subject to Medicaid claims.
If I have both first-party and third-party money to protect, then I need one of each kind of trust.If I do not follow the rules and I mismatch the subject and the verb of my sentence, then my intentions to convey a thought will not be clear. If my family and I do not follow the rules and mismatch the type and funding stream of my special needs trusts, then the intentions will not be clear, and there is a good chance that I will lose SSI and Medicaid or see my third-party assets claimed in Medicaid claims. If I have both first-party and third-party money to protect, then I need one of each kind of trust.
(1) Funds held in and ABLE account or a PASS plan (as I have discussed in other blogs) are also not counted for SSI and Medicaid eligibility.