When creating a special needs trust, you need to make sure to choose the right type. There are two options: first-party and third-party.

According to the Special Needs Alliance, the most important distinction between the two types of special needs trusts is that a third-party trust does not have to reimburse any government aid your child receives, whereas a first-party trust does have to use funds to pay back assistance.

First-party trust

A first-party trust is one that the beneficiary’s property funds. If you want to create a trust that will hold property belonging to your child, then this is the type to choose. You may also use this trust to transfer inheritance into after your death.

This can be beneficial for certain assets, such as your home, if you want to be sure your child gets it upon your death. However, remember that money in this type of trust must go to repay government aid your child receives. This may mean your child will have to sell any assets to get the funds necessary for reimbursements.

Third-party trust

A third-party trust is one that someone else’s property funds. If you want to create a trust for your child where you transfer assets to your child, then this is the type of trust you use. You can use it to plan ahead for the care of your child after your death by including it as part of your will and other estate planning documents. It should avoid probate and pass straight to your child. Any assets in the trust must be in your child’s name, so keep that in mind.