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What Is The Difference Between First-Party And Third-Party Pooled Trusts?

Pooled trusts are an excellent way to ensure disabled loved ones have enough money to take care of their needs during their lifetimes, without jeopardizing any public benefits they may be receiving. When choosing a pooled trust, you have the option of joining a first-party or a third-party trust. Here's the difference between the two to help you choose the one that is most appropriate for your needs.

First-Party Pooled Trust

A first-party pooled trust is one that is funded by the individual's own money and assets. For example, a person who works a full-time job would deposit his or her paychecks into the fund. In turn, the fund would pay the person's expenses.

This type of trust is most appropriate for people who acquire income or assets during their lifetime that causes them to exceed the maximum income level for the public benefit programs they are participating in. If the individual won a personal injury lawsuit, for instance, the award could be placed into a first-party pooled trust. This way, the person can continue receiving Medicaid assistance while still retaining access to the funds.

When the individual dies, the money and assets left in the trust are used to repay Medicaid for the expenses the program paid out for the person's care. Any money left over becomes property of the trust.

Third-Party Pooled Trust

A third-party pooled trust, on the other, is funded by money from other people. It's most often used by family members to leave money and assets to their loved ones. For example, parents would place their child's inheritance into the pooled trust rather than give it to the child directly.

The main benefit of this type of trust is that anyone can fund the trust at any time. Though the parents may have originally set up the pooled trust to leave money to the child upon their death, aunts and uncles can contribute to the fund also at a later date.

When the beneficiary dies, the money and assets contained in the trust are passed on to other people or organizations as per the contributor's wishes. The parents may request that any money left over in the fund be sent to other children, for instance. If there are no other beneficiaries, then that property will typically stay in the fund.

First-party and third-party trusts are, by no means, exclusive. You can sign your loved one up for both types to minimize the impact income and assets have on the individual's eligibility for social programs. For more information on using pooled trusts to your loved one's advantage, connect with an organization that specializes in managing them, such as Life's Plan Inc.