What is a Third-Party Special Needs Trust and How is it Different From Other Kinds of Trusts?
A third-party special needs trust is a useful legal vehicle for caring for an individual with special needs. Anyone with a family member with special needs can benefit by using a special needs trust as part of their estate plan. Below, we explain the use and benefits of third-party special needs trusts. Call a knowledgeable Vancouver trusts and estates lawyer for assistance.
First-Party vs. Third-Party Trusts
A trust is a fiduciary arrangement in which one party, known as the trustor, gives another party, known as the trustee, the right to hold and manage funds for a specified purpose and for the benefit of a third party, the beneficiary. Trusts can be employed for a number of purposes, including estate planning, elder planning, Medicaid planning, and Medicare planning.
Trusts can be either “first-party” or “third-party.” A first-party trust is a trust in which the party contributing the funds is also the beneficiary. For legal reasons, it can be advantageous to put funds into a trust and relinquish control to a trustee, even when those funds will be used to benefit the same person who funded it in the first place.
A third-party trust is a trust established for the benefit of another party. The trust will be funded by one party, such as a parent, and will inure to the benefit of a third party, such as a child.
Third-Party Special Needs Trusts
A special needs trust is a special kind of trust established for the benefit of a person with special needs. Typically, a family member such as a parent will set up a special needs trust to benefit a child with special needs. The trustee of the trust will use trust funds and management proceeds to support the person with special needs. Distributed benefits can be used for many purposes, including classes, hobbies, luxury items, professional fees, personal services, furniture, transportation, and even vacations. The beneficiary never has direct access to trust funds and has no ownership over the property in the trust. The trust may be set up as part of an estate plan to distribute benefits to the beneficiary upon the death of the donor, and it may be used to transfer assets to a beneficiary with special needs while the donor is still living.
A special needs trust is useful when caring for a special needs person because it allows funds to go to a person with needs without affecting the beneficiary’s eligibility for needs-based governmental programs such as Supplementary Security Income (SSI) and Medicaid. Moreover, because the funds never actually belonged to the beneficiary, the government cannot seek reimbursement for Medicaid payments made on behalf of the beneficiary upon their death. The third-party special needs trust can thus be used to care for a person with special needs while preserving the remainder of the trust funds for other heirs and beneficiaries upon the death of the special needs beneficiary. First-party trusts and other types of trusts do not carry these same benefits.
Protect Your Loved Ones and Your Future With Help From an Estate Planning Attorney
Special needs planning attorney John Lutgens can help protect your family, creating an estate and special needs plan tailored to your needs and circumstances. We will evaluate your circumstances and those of your family to determine the best type of will, trust, and other legal documents and mechanisms available to benefit your family the most. Contact the experienced and effective Washington and Oregon estate planning attorney John Lutgens in Vancouver at 360-693-2119.