Recently we shared an article which discussed three types of special needs trusts; third-party special needs trusts, first-party special needs trusts and pooled trusts. We also shared that we generally think of any trust, special needs or otherwise, as boxes to safe keep things, money or property for the benefit of another.

A third-party special needs trust is a box, set up by someone other than the person with special needs, where things, money, and property are placed for the benefit of the person with special needs.

It may best be understood like this:

3rd party = Box Builder

3rd party = Places things, money and/or property inside the box.

Box Benefits Who? = Person with special needs.

 

When are these 3rd Party Special Needs Trusts used most commonly?

When a parent, grandparent, or any family of a person with special needs is getting their own estate plan (will, trust, power of attorney, etc.) put together.

 

Why?

Because if this parent or grandparent has any member of their family who has special needs and desires any inheritance left to that person with special needs, there may unintended negative consequences.

Here is a list of potential unintended, negative consequences:

  • Conservatorship: Person with special needs inherits monies. However, they are incapable of managing their own finances. There is a strong potential that a conservatorship proceeding, a court proceeding, will have to be established in order to protect those monies for the benefit of the person with special needs.

Potential negative consequences:

Court proceeding, attorney fees, oversight by a court for life of conservatorship.

 

  • Public Benefits: Person with special needs is qualified for and receives benefits through either Social Security or Medicaid. While most of these benefits may not have an income/asset eligibility standard, some might. A person with special needs receiving an inheritance directly may lose a public benefit (even if temporarily) as a result of the inheritance.

Potential negative consequences:

Loss of public benefit (Medicaid or Social Security) even if only temporary, need for professional advocate such as attorney or agent, fees associated with professional advocate, disruption of much-needed services or benefits.

 

  • Vulnerability: Person with special needs receives an inheritance from the parent who has been the primary caregiver. Because that parent is now deceased, the natural fit for who would manage an inheritance (through a conservatorship) is no longer available. Now there may be a disagreement or even a legal contest for who will manage these assets. As the parent, there may have been an “assumption” of who would do this on behalf of the adult child with special needs.

Potential negative consequences:

A person not of the parent’s choosing controls monies on behalf of person with special needs.

 

Avoiding the Consequences

These are just a few of the consequences that can be avoided by the establishment of a third party special needs trust.

If you have a family member who has special needs and there is a potential for them to inherit from you or someone else, it is really important for the person who may leave them monies to talk to an estate planning attorney to see if a third party special needs trust is the right fit to protect the family member with special needs and protect the monies wished to be left for their benefit.

We’ll continue to share about each of these types of trusts and examples of when each of the three would be appropriate for families. Perhaps one of them will be the answer to a question that has been in the back of your mind.

The bottom line is, however, that your family is unique. Unique not just because you have a family member that is very special. But because how you parent, how you love, how you help your community around you is also very unique and special. These trusts are like your family. They are unique to you.

If you have questions about whether any of these three trusts may be a good fit for your unique family, reach out to us at Atlanta Wills + Trusts Law Group.

 

Contact Us For Help With Your Special Needs Trust(s)

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