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Third party Special Needs TrustIf you are a family member who cares for someone with a disability, whether a child or an adult, a Special Needs Trust is an estate planning tool that can be used when a client or client’s family member may be entitled to government benefits. A properly drafted Special Needs Trust, funded with an adequate amount of assets, and administered properly by a competent trustee can make an extraordinary difference in the life of the beneficiary.  It can also provide a higher standard of living for the beneficiary and bring relief to their family members. A Special Needs Trust should be the preferred option over the traditional spendthrift trust since it can protect the government benefits of the beneficiary.

FIRST PARTY SPECIAL NEEDS TRUSTS v. THIRD PARTY SPECIAL NEEDS TRUSTS

First Party Special Needs Trusts

First Party Special Needs Trusts can be created by a parent, grandparent, legal guardian, court, or the beneficiary if competent. A first party Special Needs Trust is funded with the beneficiary’s own assets or assets the beneficiary has a legal right such as government benefits. The primary benefit of a first party Special Needs Trust is that it allows the beneficiary to possibly shield the beneficiary’s own assets from being accounted for with respect to receiving means-tested government benefits.

On the other hand, first party Special Needs Trusts are subject to more stringent guidelines and state laws and possibly even court supervision. With the help of an attorney, a beneficiary can review state specific requirements before drafting or implementing a first party Special Needs Trust. Most importantly, a first party Special Needs Trust can hold assets which the beneficiary owns and protect those assets from being considered as resources for purposes of eligibility for SSI and Medicaid.

Third Party Special Needs Trusts

Third Party Special Needs Trusts can be created by anyone, other than the beneficiary, but must be funded with assets that the beneficiary has no legal right to. Similarly, to a first party Special Needs Trust, a third party Special Needs Trust is commonly a fundamental part of the estate plan of a client who has a child or other family member with a disability. The main advantage of a third party Special Needs Trust is that it allows the trustee to have broad discretion to make distributions to the Special Needs Trust beneficiary.

Unlike a first party Special Needs Trust, distributions may be made in the trustee’s discretion, there can be more than one beneficiary, it does not have reimbursement requirement to Medicaid, and it can be revocable. Furthermore, third party Special Needs Trusts are much more flexible than first party Special Needs Trusts and are intended to receive assets owned by third parties (for example parents, extended family members, friends) by inter vivos or testamentary transfer.

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It’s often advisable to have a lawyer draft any one of these documents to make sure it is correctly worded and meets all the qualifications of your state’s laws. These are considerations not just for the client, but for anyone intending to benefit from a Special Needs Trust.

If you are interested in discussing any of these documents, contact the lawyers at Johnston Tomei Lenczycki & Goldberg LLC today. We offer a no charge initial consultation where we will understand your assets, your family, your estate plan goals, and then recommend your best planning options. We take a holistic approach to estate planning, and will consider all planning documents available if the need arises. Call us today at 847-549-0600 to schedule your free initial consultation.

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Johnston Tomei Lenczycki & Goldberg LLC

Phone Number: (847) 549-0600
Fax Number: (847) 589-2263

Libertyville Office
350 N. Milwaukee Ave., Ste. 202
Libertyville, IL 60048

Gurnee Office
223 N. IL. Rt. 21, Ste. 14
Gurnee, Illinois 60031

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2100 Manchester Road, Suite 920
Wheaton, IL 60187