One of the nice things about trusts is that there are so many different kinds. It is safe to say that California families could find a variety of trusts that fit their individual needs. 

In fact, many of those trusts include different kinds within one type of trust, including special needs trusts.

All special needs trusts have the same goal

There are two categories of special needs trusts: third-party or first-party trusts. And the primary differences between these two kinds include:

  1. Who can create the trust
  2. How the trust is funded

However, both types of trusts still serve the same purpose. They both benefit loved ones with physical or developmental disabilities and ensure that they can qualify for government benefits.

Third-party trusts are the most common

Third-party trusts are usually the example that people think of when it comes to special needs trusts. This is the kind of trust that parents can add to their estate plan to benefit their young or adult children with disabilities with supplemental care. Parents—or other loved ones—fund these trusts and leave their child with property or assets that support them after they are gone.

Most third-party special needs trusts go into effect after the parents pass away.

First-party special needs trusts protect the individual’s property

The American Bar Association lists various kinds of first-party special needs trusts. However, like special needs trusts in general, they all have similar characteristics. And they all have the same goal.

Instead of being funded by a third-party, first-party trusts are made to hold the property of the individual with special needs. For example, a first-party special needs trust can protect that person’s:

  • Court settlement awards from a divorce or personal injury claim
  • Retirement pensions or inheritances in their name
  • Any other significant property they own

Creating a first-party special needs trust to hold this property helps the individual keep that property while still qualifying for government benefits. 

Understanding the differences is critical

Families have a variety of options when it comes to choosing a special needs trust, but that can also make it difficult for families to pick the trust that fits their loved one’s needs. Understanding the different details of these types of trusts can help families make an informed decision to protect their loved one’s future.