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What is a Third-Party Special Needs Trust?

What is a Third-Party Special Needs Trust (SNT)? A Third-Party SNT is an estate planning tool that helps provide a quality of life. Often family members desire a way to provide for a child with a disability.  Parents with  child who has a disability should consider taking an extra step in estate planning and think about setting up a third-party special needs trust for your child.

Why Consider the Third-Party SNT?

Today, children with major disabilities live longer and age into adulthood.  Children aging into adulthood with a disability may outlive parents.  That means, you the parent, will no longer be there to financially take care of your child.  By setting up a Third-Party Special Needs Trust, the beneficiary enjoys activities and a higher quality of life. Funds might be used for at-home care, material goods, health care expenses not covered by insurance, and enrichment activities.

What is the Purpose of the Trust?

Many disabilities require various degrees of medical care, different home care, and family support. A person with a disability faces many challenges as well as successes.  How does a special needs trust help a person with a disability? Often a person with a disability has high medical expenses or may need to rely on government benefits. The SNT keeps a person qualified for possible future benefits. A third-party SNT  provides monies for activities and expenses for a quality of life during a parent’s life and after the primary guardian or caregiver passes away.  How is the SNT Created?

Creating the SNT

During the estate planning process, the Grantor creates and transfer assets to the trust.  If the trust remains unfunded, it is an incomplete gift to the trust.  If it is not funded at death, the trust is usually terminated. It is best to fund the trust on date of creating it.

The Grantor’s intent to set up the trust is stated and the trust includes a statement of disabilities, use of funds, designated trustee and early termination of the trust. The third-party SNT includes language for a Care Manager, and also an Advocate for the beneficiary. Both roles support your child through stages of life and needs. A third-party special needs trust is irrevocable and often managed by a corporate trustee.  More recent Special Needs Trust include Trust Protector language.  It also provides a designated beneficiary or charity to receive remaining funds upon the death of the intended beneficiary.

Funding the Trust

Once the SNT is created, the next step is funding the trust. A grantor may fund the trust during his or her lifetime. The trust is funded with assets that do not belong to the beneficiary.  Funding the trust during life helps the trust funds grow and provide numerous benefits. The Grantor funds the trust with diversified assets. Examples of funding include income-producing real estate, a personal residence, or even an irrevocable life insurance trust.

If the trust is not funded during the grantor’s life, then it must be funded at death. The Grantor may  name the trust as the beneficiary of an IRA, rather than naming the child or beneficiary by name. Family members name a  Third–Party Special Needs Trust in his or her  last will and gives an inheritance to the trust.  Once a trust is created, it’s important for family members to name the trust and not the individual in their Last Wills. If the person is named, it defeats the purpose of establishing a third-party trust.

Revocable or Irrevocable Trust?

A First-Party trust differs from a Third-Party SNT.  A person on government benefits with an inheritance or personal injury needs a first-party to maintain government benefits such as Medicaid.  A First-Party SNT is always an irrevocable trust with a payback to the state.  However, a Third-Party is set up usually by a family member.  The third-party SNT may be revocable or irrevocable.  If the trust is revocable, the Grantor manages the trust for the beneficiary.  A revocable special needs trust becomes irrevocable at the grantor’s death.  If it is irrevocable, the Grantor names a trustee who will be responsible for managing the trust’s funds.  It is best practice though to make the trust irrevocable and name a corporate trustee. How is the SNT Created?

Your Trust Attorney

Tucker Legal Services works with families with family members with disabilities.  The firm works with strategic partners to help find the right trustee.  It’s essential to work with an estate planning attorney while creating a special needs trust. If you’re ready to start working toward your estate planning goals, this is the time to call me at 314-332-0011. You may also book a complimentary consultation with me.

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Sheri Tucker

Your Personal Care Attorney. Owner and Founder of Tucker Legal Services, LLC. I'm an attorney licensed since 1991 with a M.S. in Psychology. Member of ABA, MOBAR, BAMSL, Elder Counsel, Wealth Counsel, and National Academy of Elder Law Attorneys (NAELA).

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