Third-Party Special Needs Trusts

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Parents of children with special needs may be understandably concerned about what will happen to their children when they pass away. Creating a third-party special needs trust could be an effective estate planning tool if you’re the parent of a child or adult with special needs. A special needs trust may allow you to ensure your child qualifies for important public aid while leaving him or her a legacy of life-long support.

If you have questions about third-party special needs trusts, attorney Christopher Heritage is here to help. He has extensive experience helping Palm Springs parents navigate estate planning with special needs children in mind. When you meet with him, you can rest assured he will answer your questions and guide you through the process. Contact Heritage Legal, PC to schedule an initial case evaluation.

What Is a Third-Party Special Needs Trust?

If your child is living with you while you’re alive, you can sometimes use your own funds to provide for him or her. When you pass away, you will not be able to pay your loved one’s bills and provide for their expenses. Creating a third-party special needs trust allows you to provide assets for your loved one with special needs after you pass away. As the trust creator or grantor, you can establish the provisions in the trust agreement. You can appoint one or more trustees who will manage the assets in the trust for the benefit of your child with special needs, the beneficiary. 

When a special needs trust has been created under relevant California laws, your loved one won’t be penalized for receiving assets from the trust. Suppose you created a last will and testament and designated your child with special needs as the beneficiary of all your cash assets and real estate property. In that case, your child with special needs would be disqualified for Medi-Cal and SSI benefits because they would own too many assets to qualify for these benefits programs. The assets in a well-drafted special needs trust will not count toward your loved one’s income and asset limits, allowing him or her to retain these important benefits.

How Can My Loved One Use the Funds in the Trust?

The assets in a third-party special needs trust can help your loved one enjoy a happy, safe, and fulfilled life after you pass away. He or she can use funds from the trust to address needs beyond what SSI and Medi-Cal provide, such as the following:

  • Caregiving and personal assistance

  • Housekeeping, including cooking, cleaning, and laundry services

  • Rehabilitative, dental, and other health care services not provided by Medicaid

  • Computers, televisions, cell phones, and appliances

  • Transportation costs

  • Grooming, clothing, and dry cleaning

  • Pet care

  • Yard services

  • Home security services

  • Legal fees and costs associated with accountants’ and attorneys’ expenses

The Differences Between a First-Party and Third-Party Special Needs Trust

There are two different types of special needs trusts: first-party and third-party. When creating a first-party trust, individuals with special needs use their assets to fund the trust. Another person establishes a third-party trust when the disabled individual is the beneficiary. The significant difference between the two, other than the funding source, involves what happens to the assets in the trust when the individual with special needs passes away. 

In a first-party special needs trust, Medi-Cal will become the recipient of any assets remaining in the trust when the beneficiary dies. When creating a third-party special needs trust, you can designate a person or charity to receive the remaining funds once the beneficiary dies. An independent trustee must administer first-party and third-party special needs trusts. The beneficiary can have no say in how the trust funds are distributed.

The Benefits of Third-Party Special Needs Trust

Creating a third-party trust can benefit parents or other relatives to help care for a disabled loved one. After the third-party trust has been created, friends, family, and other loved ones can contribute a wide range of assets to the trust, including real property, cash, securities, portfolios, and anything of value. Anyone can contribute to the third-party trust, not just the person or people who set the trust up. However, the beneficiary cannot contribute to a third-party special needs trust. Doing so could disqualify him or her from Medi-Cal and SSI benefits.

Establishing a Special Needs Trust in California

A special needs trust must follow all of the legal requirements so the assets don’t disqualify the beneficiary from receiving government benefits. An estate planner can use a will to designate your assets, in whole or in part, to transfer into the third-party special needs trust. However, a will must go through probate court before your assets can be distributed into the special needs trust. During the probate process, your child or loved one with special needs would be without supplemental funds. 

Many estate planners work with attorneys to create a trust agreement. Assets will transfer directly to the special needs trust. Whether you establish a trust through your will or as a separate trust, it’s crucial you work with an experienced attorney. Attorney Christopher Heritage is well-versed and experienced in every aspect of estate planning, including creating special needs trusts in California. 

Contact a Palm Springs Special Needs Estate Planning Attorney

If you have a child or loved one with special needs, it’s imperative you discuss your case with an experienced attorney. Third-party special needs trusts can help you ensure your loved one is well-cared for financially while still receiving important benefits. Attorney Christopher Heritage has helped many Palm Springs-area families create special needs trusts as part of comprehensive estate plans. Don’t hesitate to contact Heritage Legal, PC to learn more about how a special needs trust can help you meet your estate planning goals.

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