Third Party Special Needs Trust

Third-party special needs trust

Before understanding what a third-party needs trust is, it’s essential to know the types of Trusts associated with special needs. We’ll go over the types of special needs trust below designed to manage the resources of a person with special needs.

Types of Special Needs Trusts (Irrevocable Trust)

1. Third-party Special Needs Trust
2. First-party Special Needs Trust
3. Pooled Trusts

What are the advantages of the Third-party special needs trust?

1. Funded with assets that never belonged to the trust beneficiary
2. Set up by a donor: rarely requires oversight from the courts, especially if the Trust’s donor is alive
3. Life Insurance Policies can be utilized.
4. Can own real estate
5. Can own investments
6. Can receive benefits from retirement accounts (recommend to speak to an estate planning attorney of the complexities)
7. No limit to the size of the trust fund
8. At the beneficiary’s passing, the third-party special needs trust can pass to the donor’s family and other options.

1st Note: The funds of the Trust never belong to the beneficiary; therefore, the government is not entitled to reimbursements for Medicaid payments. (The Trust should be drafted appropriately)

2nd Note: No age limit for third-party trusts, unlike the first-party Trust.

3rd Note: Especially when the donor is living, third-party trusts usually generate income tax for the donor and not the beneficiary. To not create income tax is advantageous for the beneficiary so as not to influence Medicare. (speak with an estate planning attorney to keep up-to-date, as tax topics change periodically.

About Hess-Verdon & Associates PLC

We hope the above breakdown has helped you. But, before taking your next step, our courteous and helpful Trust Attorneys are a phone call away.

Hess-Verdon is in Newport Beach, CA.

Hess-Verdon is your choice for all your Special Needs Trust questions.

Call (888) 318-4430

We will make sure the Trust is created using the language necessary to make it valid. We will also make sure it’s broad enough to meet the evolving needs of the disabled beneficiary.

Other Topics we will cover: Spend down plan, Settlement protection trust, Pooled trust, ABLE account.

What are some special needs topics I should know?

Things to consider are the following:

1. Assets in the beneficiary name. (Current limit is $2,000.00)
2. Financial planning
3. Special Needs Trust
4. SSI (Supplemental Security Income) and SSDI (Social Security Disability Income)
5. Settlement Planning
6. Public Benefits
7. Health Care
8. Estate Planning
9. Disability Issues

What other alternative is there to Special Needs Trusts?

1. Achieving a Better Life Experience ACT (ABLE). Go here –>IRS ABLE Accounts of 2014
2. Passed in 2014 to allow for special bank accounts for individuals with a disability

What are the two most common types of special needs trusts? (First-party and 3rd-party)

First-Party funds – (d)(4)(A) trust (referring to its authorizing statute) (i.e., trusts that are funded directly by the person with a disability, which may be subject to Medicaid payback rules) and third-party funds (i.e., trusts that are supported by parents, grandparents, guardians or other funding sources that are likely, not subject to Medicaid payback rules)

1. What are some qualifications for a first-party trust?

1. The disabled beneficiary should be under the age of 65 and disabled
2. The trust should be created by a parent, grandparent, guardian, or the court.
3. When creating the SNT, the State in which the beneficiary lives should be designated as the primary beneficiary of the trust.
4. And the assets in the SNT should be only used for the Medicaid beneficiary.

Take Note: Both first-party and third-party SNTs should be drafted correctly to protect the disabled beneficiary’s right to receive means-tested public benefits.

2nd note: The tax consequences of SNTs are also very complex.

3rd note: Some States require that an annual budget be established.

4th note: If you don’t follow State rules, and they may change periodically, you will disqualify the trust and disqualify the beneficiary from Medicaid.

 5th note: Pool trust. Also known as (d)(4)(C) Trust. A pooled trust established by a non-profit organization that combines assets from many people. (contact us for details)

How does the beneficiary access the special needs trust?

1. The Trustee can purchase necessities for the loved one, services like personal care, vacations, home furnishings (see above partial list). The Trustee could disqualify the beneficiary by directly giving the cherished one money, etc..

We hope the above breakdown has helped you. But, before taking your next step, our courteous and helpful Trust Attorneys are a phone call away.

Hess-Verdon is in Newport Beach, CA.

Hess-Verdon is your choice for all your Special Needs Trust questions.

Call (888) 318-4430

We will make sure the trust is created using the language necessary to make it valid. We will also make sure it’s broad enough to meet the evolving needs of the disabled beneficiary.

Other Topics we will cover: Spend down plan, Settlement protection trust, Pooled trust, ABLE account.