A Third-Party Special Needs Trust (SNT) is created by the donor with their money and is usually part of a larger estate plan. Typically, donors are parents and grandparents. Usually, these trusts are funded when the parents or grandparents die. Assets that can go into the trust are life insurance proceeds, bank accounts, real property and mutual fund accounts. Retirement accounts can also go in although the process is very complicated and typically not recommended unless there are no other assets available. There is no limit on the size of the Special Needs Trust.
The beneficiary of this trust is the person with special needs. As long as the money is left in a Special Needs Trust, the person with special needs can continue to receive state and federal benefits. The assets in the Special Needs Trust will not be counted again him or her.
The ABLE Act changes the asset limits for anyone who is diagnosed with a disability before age 26. However, the ABLE Act does not negate the need for a special needs trust.
One advantage of a Third-Party Special Needs Trust is that is can be revocable until certain triggering events. The advantage to that is the trust can be changed during the lifetime of the Grantors. Typical Grantors usually are parents and grandparents. The reason that it is good that the Third-Party Special Needs Trust stays revocable is because it is somewhat typical to change trusts. Common changes are changing trustee, changing the beneficiaries who inherit the money after the special needs beneficiary, and changing the trust due to changes in the law.
Some of the different main benefits of a Third-Party Special Needs Trust are:
The drawback of the Third-Party Special Needs Trust is it cannot hold the money of the person with special needs. It is really important that the money is not comingled. Often, special needs beneficiaries work. Parents are reluctant to take money from their special needs children. Even if they charge rent, they might save the money, and therefore, special needs beneficiaries frequently have their own money. The issue is what can be done with that money. If there is less than $100,000.00, and the child was diagnosed with the disability before age 26, then the ABLE Act applies. If there is more than $100,000, or the child did not get his/her diagnosis before age 26, then a First-Party Special Needs Trust needs to be considered.
If you are considering a Third-Party SNT, it’s important to consult with an experienced special needs trust lawyer in Fairfax. Rhonda Miller has been helping families and individuals with their estate plans for over 20 years and will assist you in choosing the option that is best for your unique situation. Call Rhonda today to learn more about SNTs.