Third-Party Special Needs Trust: An Effective Option For Many Families
Caring for a loved one with special needs involves planning for their future. As a parent or grandparent of someone with special needs, you want to do everything you can to take care of them for their lifetime. A special needs trust accomplishes that. When properly structured, it can provide the financial resources your loved one deserves for a high quality of life, without disqualifying them from the public benefits they need.
There are multiple types of trusts, including third-party special needs trusts. Determining which type is best suited for your situation requires knowledgeable guidance on all the intricacies of these trusts. At Enea, Scanlan & Sirignano, LLP, our attorneys handle third-party special needs trusts and other types of trusts. We have done so for decades. Based in Westchester, we are well-versed in the many nuances of special needs planning under both federal tax law and New York law.
What Is A Third-Party Special Needs Trust?
A third-party special needs trust, also called a third-party supplemental needs trust, is funded by someone other than the beneficiary.
By contrast, first-party special needs trusts (also called self-settled trusts) are funded by the beneficiary’s own assets – typically, an inheritance they have already received or a personal injury settlement.
Third-party trusts are often funded by:
- Adult siblings
- Other relatives
These trusts can be structured as:
- A testamentary trust that takes effect after the trust’s creator passes away
- An inter vivos trust that goes into effect while the creator is still alive
However, an inter vivos trust can’t be created for a spouse with special needs or for a minor child.
Limitations Of Third-Party Special Needs Trusts
As with other types of special needs trusts, third-party trusts must be clearly structured so that they only cover supplemental expenses rather than basic needs. The trustee, who must be someone other than the beneficiary, should be prohibited from making disbursements for expenses that would otherwise be covered by public benefits such as Supplemental Security Income and Medicaid. The beneficiary also can’t have direct access to the trust funds.
Advantages Of Third-Party Special Needs Trusts
A third-party trust has a significant advantage over first-party trusts with regard to payback requirements. Under New York law, any funds left over from a first-party trust after the beneficiary’s death must be used to pay back Medicaid for the benefits the beneficiary received during their life.
There is no such requirement for third-party trusts. This gives the trust creators more flexibility in deciding how they would like any leftover funds to be used.
How To Set Up A Third-Party Special Needs Trust
There are rigorous requirements for setting up a special needs trust. New York law requires specific terms and limitations to be included. One misstep could jeopardize the validity of the trust, which in turn will impact your loved one’s ability to get public benefits.
It’s critical to work with an attorney who is highly knowledgeable about these trusts.
Talk To Our Lawyers About Whether A Third-Party Special Needs Trust Is Right For You
Selecting and implementing the right kind of special needs trust is a big decision, one that can have significant long-term effects for your loved one. Our lawyers can help you weigh all the considerations that go into shaping a special needs trust that accomplishes all of your wishes. We will ensure that no details get overlooked in creating a valid, enforceable trust.