Families of individuals with disabilities can set up a special needs trust (SNT) to provide their loved ones with financial support throughout their lives. Parents often establish SNTs for their children, and others can contribute to this type of trust as well. Third-party SNTs are a lesser-known type of trust, as more people are familiar with first-party SNTs and pooled trusts; but third-party SNTs offer distinct advantages. With a third-party SNT, the person who sets up the trust must decide what will happen with the remaining funds after the death of the beneficiary, as the funds do not need to be repaid to Medicaid. Thus, third-party SNTs offer more flexibility and control than other instruments. Federal law does not require that the beneficiary of a third-party SNT be disabled, but state-level requirements vary. (1) Only a beneficiary’s parent, grandparent, or legal guardian may establish a third-party SNT, unless the trust has been set up by the court. A parent can set up a trust for a child of any age, even a senior (for example, a 90-year-old mother could set up a third-party SNT for her 65-year-old daughter). A third-party SNT can be funded during the parent’s lifetime through cash contributions, but can also be funded or created by a will or a life insurance policy. Once the trust is established, anyone other than the beneficiary can fund the trust (including non-relatives). If you already legally own money from another source such as an inheritance, you cannot put the funds into your own third-party SNT. If a family member bypasses the trust by making a gift or a bequest directly to the beneficiary, the beneficiary can lose important government benefits such as Medicare or Supplemental Security Income (SSI). Gifts intended for the beneficiary should be made to the third-party SNT only. (2) Funds from any SNT must be used in the right way. If you receive Supplemental Security Income (SSI) or Medicare, distributions that you receive from a third-party SNT are not counted as income for the purpose of determining your eligibility to receive benefits, but there is an important distinction to be made. You should not use funds received from the trust to pay for food or shelter, because this will be counted as additional food or housing assistance, which will result in your SSI benefits being reduced or stopped. Funds from the trust can be used to pay other expenses above what your public benefits cover. Accidental transfers or distributions can create problems for this reason, so it is important to select a trustee who is sufficiently detailed-oriented, preferably with some basic accounting experience. Trusts can be an effective tool for ensuring that your loved ones are cared for and that monies are used in a responsible manner. A third-party SNT can serve as an important estate planning tool to provide for the well-being of a family member with a disability. If you would like to find out how we can help you with setting up a trust (or with any financial matter), call 440-505-5751 or email jcohen@Wadvocate.com to schedule an appointment. David Thorne is CEO at Wealth Advocate Group, LLC, an independent, fee-based wealth management company based in Beachwood, OH. With over 25 years of experience, David specializes in working with executives, helping them create proactive strategies for incentive and non-qualified stock options, restricted stock (RSUs), and concentrated stock positions. David is known for delivering a high level of service to his clients through Wealth Advocate Group’s caring-first, relationship-based approach. Dave has a bachelor’s degree in finance and psychology from Kent State University and is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional. He has also been a featured guest speaker for several financial service associations, focusing on executive stock option planning and risk management. When he’s not working, you can find David spending time with his wife, Tiffany, and their three adult daughters. He loves participating in all types of fitness activities, including snowboarding, mountain biking, and hiking with his dog. To learn more about David, connect with him on LinkedIn. _____________ (1) https://www.specialneedsalliance.org/the-voice/your-special-needs-trust-snt-defined-2/ (2) https://laweasy.com/tips/special-needs-trusts-snt-planning/
Funding a Third-Party SNT
Use of Funds, Public Assistance, and Administration
We’re Here to Help
About David
