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Third-Party Supplemental Needs Trusts

Third-party supplemental needs trusts are created with the assets of someone other than the disabled person. Similar to a self-settled special needs trust, assets held by a properly drafted third-party supplemental needs trust are not deemed available to the beneficiary and, therefore, won’t disqualify the beneficiary from receiving government benefits. The trust funds can therefore provide a safety net to the disabled individual for his or her lifetime.

In the past, it was not unusual to plan for a disabled child or adult by disinheriting that person. Such a drastic strategy is no longer considered appropriate or necessary. Third-party supplemental needs trusts are now strongly recommended to those who wish to provide financial support to a disabled loved one. Such a trust allows you to ensure that your disabled loved one will benefit from the funds you leave them at your death or provide to them during your lifetime without the worry that you will be disqualifying them from their current public benefits or preventing them from qualifying for such benefits at a future date.

A designated Trustee manages the assets in the third-party supplemental needs trust and makes distributions to or for the benefit of the disabled beneficiary. It is critical that the trustee be intimately familiar with the very specific rules and regulations involved with government benefits to ensure that the assets in the trust are not deemed an available resource to the beneficiary, thus leading to disqualification from benefits. Rules and regulations are constantly changing and a trustee must be vigilant regarding changes in the law or risk unintentionally disqualifying the beneficiary’s eligibility for benefits.

Differences In Trusts

Unlike a self-settled special needs trust, the creator of the third-party supplemental needs trust can designate to whom assets remaining in the trust at the death of the disabled beneficiary will be distributed. It is NOT necessary to provide payback to the government for services provided to the disabled beneficiary. Additionally, a third-party supplemental needs trust can be used to catch inheritances from multiple family members, not just the creator of the trust.

If you wish to provide for a disabled individual at your death or during your lifetime, contact one of the trusts attorneys at Huck Bouma. If you are the trustee of a third-party supplemental needs trust and would like guidance on proper trust administration, schedule a consultation or trust review today.