When trying to ensure resources are available even after your death for a special needs child, you have a few trust options. One such option is a third-party special needs trust, and according to an article from Special Needs Answers titled ”What is a “Third-Party” Special Needs Trust and How is it Different From Other Kinds of Trusts?”, it’s used under different circumstances than first-party or pooled trusts.
While first-party and pooled trusts are helpful if a special needs individual has assets in their own name, a third-party trust is funded with assets that never belonged to the beneficiary. The trust is funded by a donor (called the “grantor”), and there is no limit on the assets put in the trust. The grantor doesn’t need to be a parent or a guardian either; it can be anyone.
A third-party trust is set up as part of the grantor’s estate plan. While these trusts are often funded by naming the special needs individual as beneficiary of a life insurance policy, the trust can also own investments or real estate. However, these funds cannot at any point hold assets that belong or have belonged to the beneficiary.
That caveat can be a bit of a roadblock for certain families, especially ones that haven’t communicated with loved ones about the creation of a special needs trust. If a special needs beneficiary comes into an inheritance that was not directed towards a third-party trust or wins a personal injury case, they or their guardian will need to establish a first-party special needs trust.
This alone illustrates the need for communicating your planning to close family and loved ones who may wish to provide for your special needs child’s wellbeing in a will or trust. Speak with family members and loved ones about how to correctly leave assets to your trust instead of the special needs individual. A Family Care Meeting can be particularly helpful in opening up the conversation with loved ones.
Even with the restriction on the origin of third-party trust assets, this type of trust can be an effective tool in your estate plan. For more information on this and other special needs planning topics, explore our website and contact us to schedule your consultation today!
Reference: Special Needs Answers (May 2015) "What Is a Third-Party Special Needs Trust and How Is It Different from Other Kinds of Trusts?"