A Third Party Special Needs Trust serves primarily to protect the use of government benefits for disabled or mentally ill beneficiaries. Because government programs usually have eligibility requirements, an inheritance could disqualify the disabled beneficiary from receiving future benefits such as Medi-cal or Supplemental Security Income (SSI).
Although all Special Needs Trust are designed to protect disabled beneficiaries, there are differences between them. A First Party Special Needs Trust for example, is only offered to beneficiaries under the age of 65. In addition, they contain a payback clause, meaning that the beneficiary’s estate must pay back to the state any monies left over once the beneficiary dies.
Third Party Special Needs Trusts on the other hand, do not contain age restrictions, nor do they require the beneficiary’s estate to pay back any money to the state. As a rule, these Trusts are usually drafted by parents of special needs or disabled children.
Here is a scenario. You have a special needs or disabled child. You worry that for whatever reason, they are unable to make proper monetary decisions. You want to provide for them when you are gone, and to protect or improve their standard of life.
To do this, you utilize your Will or Trust, and have drafted on their behalf, a Third Party Special Needs Trust. Why? Because the surviving child doesn’t have control over the Trust, meaning that the child is unable to revoke the Trust, or to use the assets contained in the Trust for any purpose other than what you intended. Another way of looking at it – is that the child cannot just take the money, which by doing so, would cost them their government benefits.
In addition, the Third Party Special Needs Trust is good for the life of the beneficiary, and if drafted to do so, allows the beneficiary to receive gifts, i.e., a home, handicapped vehicle, funds to be used towards paying utility, repair, and therapy costs (or other such costs not covered by Medi-cal).
The Third Party Special Needs Trust exists to protect those most in need of protection. At the same time, this Trust isn’t good for everyone. If interested in having this or any Trust drafted, always begin by speaking to a qualified estate planning attorney.