A supplemental needs trust, a third-party SNT is funded with assets (money and property) that do not belong to the special needs beneficiary but are meant to be used for their benefit. Third-party SNTs allow the beneficiary to receive some benefit from the trust while preserving the beneficiary’s eligibility for means-tested public assistance programs such as Medicaid and Supplemental Security Income (SSI). When the beneficiary passes away, whatever funds remain in the third-party SNT can pass to other family members.

SNTs and Third-Party SNTs Explained

There are two main types of SNTs: first-party SNTs and third-party SNTs. Both are intended to ensure that a person with a disability or functional needs can receive financial support from the trust while preserving their government benefits. What differentiates these two types of trusts is the source of trust funding and the government’s entitlement to a portion of the trust’s funds.

• First-party SNTs are funded with first-party money (i.e., the beneficiary’s own assets). Typically, this type of SNT is set up by a person with special needs if they receive a windfall (e.g., a personal injury or medical malpractice settlement) or if they become disabled at a time when they have significant assets but need to qualify for means-based benefits.
• Third-party SNTs are established by a parent, grandparent, sibling, or other person and funded with their assets rather than the assets of the beneficiary—including money, life insurance policies, real estate, and investments—to benefit a family member with special needs. A third-party SNT can be created in two ways:
  • A standalone third-party SNT is created during the lifetime of the trustmaker, is effective immediately upon creation, and remains effective after the death of the trustmaker. It is eligible to receive assets from multiple sources during and after the trustmaker’s
  • A testamentary third-party SNT is created as part of a person’s last will and testament and does not come into existence until the person who created the will passes away. At the time of death, designated estate assets are transferred to the trust and the individual with special needs becomes the beneficiary of the trust.