Third Party and Self-Settled Special Needs Trusts

When parents set up a Third Party Special Needs Trust, it is created by and funded with the assets of the parents. The parents are considered to be the “third party”. The trust is not set up with the assets of the special needs child, and the transfer may not be created to make the parents eligible for Medicaid paid nursing home care.

The Trustee has wide discretion in making distributions to or for the benefit of the special needs child. For this reason, the Trustee should be familiar with and responsive to the particular needs of the special needs child, should have knowledge of the government benefit programs and the effect the trust may have on eligibility for these programs. The Trustee should be in good health, reliable and financially astute.

If a special needs child has received an inheritance, gift, bequest, lawsuit award or settlement, child support, alimony or divorce property settlement, the receipt of these assets can disqualify a child for means tested benefits such as Medicaid and Supplemental Security Income. In cases like these, a Self-Settled Special Needs Trust should be established to preserve the child’s eligibility for the government benefits. Better practice is to have a Third Party Special Needs Trust already in place so that the inheritance, gift, bequest, lawsuit award or settlement, child support alimony or divorce property settlement can be made payable to the Third Party Special Needs Trust thereby allowing any Special Needs Trust funds remaining after the death of the special needs child to be distributed to remaining family members.

Contact an estate planning law firm for further information.