A Third Party Special Needs Trust is created for the benefit of a disabled person, which ensures that the disabled person will have proper care. The Third Party SNT is funded with assets typically by family and friends of the disabled person. Unlike the First Party SNT, the property is never owned by the disabled person, and there is also no payback of Medicaid or any other government benefits. When properly planned, a Third Party SNT can provide greater flexibility than a First Party SNT, and can be a very useful mechanism for providing proper care for a person with special needs.
While every state has its own requirements for Special Needs Trusts, generally, Third Party SNTs are more flexible because there are no age requirements. They also do not have to be monitored by the Probate Court in the county of their residence, and may be either revocable or irrevocable. As long as there is careful planning and proper management, there is no repayment of any governmental funds, like Medicaid.
There are common mistakes that must be avoided to ensure that the Third Party SNT works properly and will not have adverse effects on the disabled person or trustee. One of the first mistakes is improperly transferring property into the trust that may disqualify government benefits or require the trust to payback the state funds. It is essential that the property in the trust is never owned by the disabled person, and he or she have no legal right to the property. Transferring property, including money, that can be traced back to the disabled person can be considered a “step-transfer,” and would result in Medicaid and other state funds to be repaid, which could cost thousands of dollars.
Continue reading “SPECIAL NEEDS TRUST MISTAKES: Pt. 2 – Third Party Trust Mistakes”