Third Party Special Needs Trust (Trust For Loved Ones)

Call us for a free consultation

In general for those individuals with disabilities that prevent them from working enough to provide for themselves the two major benefits are the Federal SSI assistance (financial assistance) and Medicaid (medical and sometimes housing assistance). Both of these programs have their own qualification requirements, however they share a hard asset limit of $2,000 (as of 2025). This means that if a benefits recipient has over $2,000, they will be disqualified from benefits.

A Utah Supplemental Needs Trust, sometimes called a 3rd Party Special Needs Trust (SNT) works by making sure that whatever funds or property you leave behind for your child with special needs, the funds will not count towards that $2,000 asset limit.

Unlike other types of trusts, the money in this trust never belonged to the beneficiary—it comes entirely from you. Because the beneficiary does not own or control the money, the government does not count it as a “resource.” This legal setup ensures that the trust funds can be used to pay for “extras” that improve their quality of life—such as specialized equipment, travel, or recreation—while their basic medical and housing needs remain covered by public programs. Best of all, because it is a third-party trust, there is no “payback” requirement, meaning any money left over after your loved one passes away can stay in your family.

Estate planning is a critical aspect of ensuring that one’s assets are distributed according to their wishes after death. Two commonly used tools for estate planning are the living trust and the last will and testament. While both serve the purpose of outlining how an individual’s assets should be distributed, a living trust offers several advantages over a last will and testament. In this comprehensive exploration, we will delve into the reasons why a living trust is often considered superior, providing a more flexible, efficient, and comprehensive approach to estate planning.

The distinctive feature of third-party SNTs lies in their external funding. Unlike first-party SNTs, where the individual with a disability contributes their own assets to the trust, third-party SNTs are funded with assets from sources outside the control of the beneficiary. These sources typically include parents, grandparents, siblings, or other relatives.

While both first-party and third-party SNTs must comply with OBRA ’93 regulations, third-party trusts have more flexibility in their structure and disbursement provisions. Since the funds are not directly owned by the individual with a disability, there is greater latitude in tailoring the trust to meet the specific needs and wishes of the family.

Similar to first-party SNTs, the primary purpose of third-party SNTs is to supplement government benefits, such as Supplemental Security Income (SSI) and Medicaid. By providing additional resources for goods and services not covered by public assistance programs, these trusts enhance the overall quality of life for individuals with disabilities.

A Third-Party SNT and an ABLE account are a powerful team. While the trust safely holds large amounts of money, using it to pay for rent or food can actually trigger a reduction in SSI benefits. To avoid this, the trustee can move funds into an ABLE account first. Because ABLE funds are exempt, your loved one can then pay for housing or groceries directly without any penalty to their monthly check. This gives them more independence and ensures they receive the maximum amount of government support possible.

Trust documents for third-party SNTs typically grant the trustee discretionary powers in making distributions. This discretionary authority allows the trustee to respond to the changing needs of the beneficiary, adapting to evolving circumstances while ensuring ongoing eligibility for means-tested benefits.

One of the significant advantages of third-party SNTs is the preservation of family assets. By structuring the trust as an external contribution, family members can leave a financial legacy for the individual with a disability without depleting the assets that might be intended for other family members.

Third-party SNTs provide greater flexibility in trust provisions compared to their first-party counterparts. Since the assets belong to external contributors, the trust can be tailored to meet the specific needs and desires of the family while still adhering to legal requirements.

Unlike first-party SNTs, third-party SNTs can be structured to minimize or eliminate Medicaid payback provisions. This planning flexibility allows families to have greater control over how remaining trust assets are distributed upon the beneficiary’s passing.

Third-party SNTs allow for active family involvement in trust management. While a professional trustee may provide oversight, family members can have input into the trust’s provisions, distributions, and overall management, fostering a sense of family engagement and unity.

Proper coordination between third-party SNTs and other estate planning documents, such as wills and powers of attorney, is essential. Ensuring that these legal instruments align with the provisions of the trust prevents unintended conflicts and enhances the overall effectiveness of the estate plan.

The choice of a trustee is a critical decision. While professional trustees bring expertise, families must weigh the benefits of professional management against the desire for family involvement. Striking the right balance ensures that the trust’s objectives are met while fostering a collaborative and supportive environment.

Clear communication among family members is crucial. Establishing open lines of communication ensures that everyone involved understands the purpose of the trust, the roles of family members, and the potential impact on the overall estate plan. Regular communication can help prevent misunderstandings and foster a unified approach to caring for the individual with a disability.

Anticipating the evolving needs of the beneficiary and incorporating provisions for a range of potential expenses is essential. Proactive planning ensures that the trust remains adaptable to changes in circumstances, providing for the long-term financial security and well-being of the individual with a disability.