Third Trust Capable of Protecting Beneficiaries with Special Needs | Elders
One of the main goals of estate planning is to protect the needs of all beneficiaries. When beneficiaries have known disabilities, planning should be intentionally protective of the beneficiary. Using a trust for the additional needs of a third party can ensure that the inheritances and benefits of beneficiaries are protected.
These third party trusts are simply instruments that can receive and hold property in someone’s name. In most supplemental needs trusts, the trustee is not the same person as the beneficiary. The trustee is the manager of all property held by the trust and the trustee pays from the assets of the trust to meet the needs of the beneficiary that are not covered by a government benefit.
Trusts for the additional needs of third parties may be established during the settlor’s lifetime or upon his death. Inter vivos trusts are preferable when the beneficiary has a known disability, as they can be named as beneficiaries of life insurance products and retirement accounts in certain cases.
Other people, such as grandparents and other family members, may also include the trust for additional needs of third parties as a beneficiary in their own planning documents, ensuring the protection of the beneficiary as well as the property.
When formed during the settlor’s lifetime, third party supplementary needs trusts can be revocable or irrevocable trusts. The decision as to which type of trust to use would be primarily determined by whether an income-producing property will be funded in the trust during the settlor’s lifetime or whether it will not be funded until the settlor’s death.
Third Party Supplementary Needs Trusts are most often used for beneficiaries with disabilities who are receiving a public benefit, are expected to receive a public benefit, or are expected to receive a public benefit in the future. However, additional needs trusts can also be used as a spending trust for beneficiaries who are simply poor fund managers or who may be vulnerable to unsavory influences.
By having a stand-alone trust document for these beneficiaries, individualized provisions can be included in the document. These arrangements can include preferences for living conditions, eligible payments for social events and family trips, and even specific annual amounts the recipient can use to purchase gifts for others. For beneficiaries who have few family members, granters may request the hiring of a care manager to ensure that the beneficiary is regularly checked and that all needs are met.
The trust for additional needs of third parties should also include a provision allowing the trustee to transfer money to an ABLE account. An ABLE account is a special type of investment account that can accumulate money without negative effects on the public benefits of the recipient.
One of the most important benefits for families is that the Third Party Supplemental Needs Trust has no provision for reimbursement to the state for any amount spent by the state on behalf of the recipient, unlike an ABLE account. This means that when the beneficiary dies, any money or property remaining in the trust simply passes to the next beneficiary listed on the document. An ABLE account would first require a refund to the state.
For this reason, an ABLE account is a useful tool, but should not replace the Third Party Supplemental Needs Trust for holding the grantor’s assets.
This type of trust is both a flexible and powerful estate planning tool. When prepared individually for the beneficiary, they can ensure that the needs of the beneficiary will be met without the risk of interruption or loss of benefits.
Cynthia Griffin is an elder law and estate planning lawyer with Burnett and Griffin PLLC in Elizabethtown. She can be reached at [email protected]