For parents of children with disabilities, the importance of estate planning cannot be understated. Creating a third-party special needs trust can help you provide for your child with special needs while protecting their eligibility for important benefits.
The special needs planning attorneys at Palmer & Slay, PLLC have helped many Mississippi families utilize special needs trusts to protect and help their children after they are gone. If you have questions about creating a special needs trust, we will take the time to answer your questions. Our experienced attorneys will guide you through every aspect of the process, helping you make informed decisions.
What Is a Third-Party Special Needs Trust?
Any person wishing to give property or money to someone who is, or may become, disabled can create a third-party special needs trust. A person can create a third-party special needs trust through a revocable living trust or a will. However, a special needs trust created in a will would be subject to the expense and time of the probate process before it is created legally.
Third-party special needs trusts may also be a standalone, separate trust that is revocable or irrevocable. Revocable trusts can be modified during the trust creator’s lifetime or irrevocable and unmodifiable.
The Benefits of Creating a Third-Party Special Needs Trust
Many individuals with mental or physical disabilities are eligible for government benefits, such as Medicaid and Supplemental Security Income (SSI). These benefits are need-based. An individual must pass a means test to ensure they don’t have enough property or money they can use to pay for nursing home costs, therapy, and other expenses.
When an individual with a disability has too many resources, he or she may be ineligible for government aid or may be subject to a penalty period. During this period, the person may be required to spend his or her money, own no property (unless it is co-owned by a spouse), and have little to no income.
A third-party special needs trust, also called a supplemental needs trust, allows you to provide extra income to your loved one while protecting eligibility for needs-based government aid in the future, even if your loved one receives an inheritance from you or another loved one.
As long as you work with an experienced attorney to ensure the trust meets certain legal criteria, the amount of money and property within the trust won’t affect your loved one’s means. Your loved one can use the funds in a special needs trust to pay for the following:
- Clothing
- Entertainment
- Electronic equipment
- Visitation or vacation-related expenses
- Hair, nails, and other personal care
- Recreational activities
- Supplemental needs not covered by insurance or other benefits
- Home improvements
- Transportation
- Sports and social memberships
- Insurance premiums on personal property
Loved Ones Can Contribute to a Third-Party Special Needs Trust
In many cases, the disabled individual’s parent creates a third-party special needs trust, making it easier for grandparents, family members, and friends to gift money or property to the trust. When gifting property, loved ones can name the special needs trust as their beneficiary in their last will and testament or gift money or property directly to the trust during their lifetime.
If you are the parent of a child with special needs, you can let your family members know it exists. Instead of loved ones giving your child cash or other direct gifts, people can use the trust to receive gifts or an inheritance. Doing so can help your child avoid acquiring too many assets to be eligible for benefits. Any money or property transferred into the third-party special needs trust won’t be a countable resource of the beneficiary for any government benefit program that uses a means test.
Differences Between a First-Party and Third-Party Special Needs Trust
With a first-party special needs trust, the individual with special needs is the trust creator and disburses his or her property into the trust. Generally, first-party special needs trusts are created when a disabled individual has received an inheritance or a legal settlement. There are two types of first-party special needs trust: individual and pooled.
Both types require the trustmaker to have the mental ability to create trust. The trustmaker must be under age 65 and meet the definition of “disabled” when the trust was created. The primary difference between a third and first-party special needs trust is that a third-party trust doesn’t require the government to be the beneficiary after the disabled beneficiary passes away.
Instead, the trustmaker remains in control and can name the ultimate beneficiary of any remaining trust property after the disabled individual passes away. As a result, a third-party special needs trust is an ideal solution for providing for a disabled loved one who is your top priority while maintaining some control over the remaining money and property within the trust. Additionally, the beneficiary does not need the mental ability to create a third-party special needs trust.
Withdrawing Money From a Special Needs Trust
With third-party special needs trusts, the trust agreement must limit the amount of payments made by the trustee to the disabled beneficiary. The payments from the trust should only be used as supplemental income, not to replace what the disabled beneficiary receives from public benefits. An attorney can help you set up the trust so the payments don’t exceed the limit on the amount your loved one may spend on personal items.
Trustees should be careful when giving money to or spending money on behalf of the beneficiary to comply with the trust instructions and all relevant laws. Carefully setting up the trust and following the trust agreement regarding payments will prevent disabled recipients from being disqualified or removed from public benefit programs.
Learn More About Creating a Third-Party Special Needs Trust
If you would like to provide for a loved one with special needs after your death, discussing your case with an experienced attorney is important. Palmer & Slay, PLLC helps you prepare for your future by drafting and funding a legally valid third-party special needs trust.
Doing so can help you ensure your loved one remains eligible for government benefits and still has the funds to supplement those benefits. We can help you discuss all of your options. Please contact Palmer & Slay, PLLC, today to schedule an initial consultation.