For Sacramento area residents who have special needs or a loved one who does, a special needs trust can be an important part of their special needs planning. Special needs trusts are typically used as a method for providing resources for those with special needs in the event their caregiver is no longer able to continue providing the support and care they need. A third-party trust is one type of trust to consider.
How basic trusts operate
The primary purpose of a trust is to protect the assets included in the trust for the future use of the intended beneficiaries. Establishing a trust allows you the opportunity to decide how you want the property to be managed for the beneficiary ahead of time.
A typical example of how a trust operates is when you set aside a certain sum of money for your child or grandchild, to which they will not have access until they are no longer minors.
How is a special needs trust different from other types of trusts?
A “special needs trust” is a unique type of trust, the primary purpose of which is to protect assets needed for someone with disabilities or special needs. If you are responsible for the care of such a person, planning ahead for their future needs and support is crucial.
The reality is, you must be prepared for the unexpected, such as the incapacity or death of the primary caregiver. There are many reasons why a caregiver may no longer be able to continue in that role. This is where special needs planning comes in.
Establishing the scope of your special needs planning
The scope of your special needs planning should be broad and the scope of your special needs trust should complement that plan. The main goals of special needs planning and the trusts that are used to accomplish that are to protect the beneficiary’s assets and provide for their future support and care. That means your trust should be structured to supply the type of protection and support you need.
Two basic options for special needs trusts
When it comes to special needs trust, there are two basic options: General Support and Supplemental Care. One is used as the principal source of financial support and the other is used to merely supplement other forms of support.
The most common type of trust used in special needs planning is the Supplemental Care Special Needs Trust. It is used in conjunction with government benefits such as SSI and Medicaid, once those benefits have been used up. Assets that are included in a General Support Special Needs Trust, however, could possibly disqualify a beneficiary from receiving need-based government benefits.
What is a Third-Party Special Needs Trust?
A third-party special needs trust involves an appointed trustee who will have the authority to use the trust funds to ensure the continued support of the person with special needs. The trustee has a fiduciary duty that obligates him or her to comply with the provisions of the trust and make all decisions in the best interest of the beneficiary.
For instance, trustees are expected to make sure that the trust assets are used only in a way that will protect the beneficiary’s eligibility for government benefits. This is true regardless of whether they already receive those benefits. Future eligibility is equally as important. Third-party special needs trusts, when used appropriately, can protect the beneficiary because the assets are not actually owned by the beneficiary because they do not have direct access.
What makes it a “third-party” trust?
This type of trust is referred to as a “third-party” trust because it is funded and owned by someone other than the beneficiary, a third-party. Put another way, the source of the trust assets establishes what type of trust it will be.
How is a first-party special needs trust different?
A first-party trust is different because it is used to protect property actually owned by the person with special needs. Depending on the circumstances, this type of arrangement might be preferred. For example, an individual with special needs might receive money or other assets as the result of an inheritance, life insurance proceeds, a retirement plan, divorce settlement or lawsuit. In those cases, the assets should be transferred to a first-party trust because the property actually belongs to that person.
If you have questions regarding trusts or any other special needs planning matters, please contact the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!