Basic Special Needs Trusts 3 [Video]

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Hi, my name is Andrew Meinzer of Meinzer Law Firm, P.C.

This is the third video in a three-part video series about California special needs trusts.

In this video we’ll continue discussing third-person special needs trusts.

As I mentioned at the end of the prior video, the two types of third-person special needs trusts are: One, stand-alone third-person special needs trusts; and two, nested third-person special needs trusts. I also mentioned that these are names that we created for these kinds of third-person special needs trusts. They are not official, and other people may call them something else.

A person creates and funds a stand-alone third-person special needs trust just like most other trusts. She signs a trust document, and she transfers her assets to the trust.

The only difference is that a stand-alone third-person special needs trust cannot receive assets of the person who receives government benefits. It can receive assets from anyone else.

A benefit of having a stand-alone third-person special needs trust is that it can hold the assets of anyone who wants to put assets into it (other than the person who receives government benefits). People can make direct lifetime gifts to a stand-alone third-person special needs trust. Also someone could draft her will or her trust to provide a gift at that person’s death to the stand-alone third-person special needs trust.

Either way the gift would improve the quality of life of the person who receives government benefits without jeopardizing those government benefits.

Often nobody in the life of the person receiving government benefits can afford to make a gift to a special needs trust during their lifetime. Then there’s no real benefit to having a stand-alone third-person special needs trust.

In that case, if the person receiving government benefits likely would inherit after the death of someone, such as a parent, then that person, such as a parent, should consider creating a nested third-person special needs trust. This situation often arises with the parents of a child (adult or not) who receives government benefits.

Without some estate planning, the parents could inadvertently cause their child to lose his government benefits when the second person dies—when the second parent dies—and that child inherits assets outright. That could cause the child to lose the government benefits if it causes his total assets, including the inheritance, to be more than the amount allowed for the government benefits that he is receiving. A nested third-person special needs trust avoids this outcome.

A nested third-party or third-person special needs trust is simpler than it may sound. The parents simply need to create a trust or a will that contains the nested third-person special needs trust. The will or trust needs to provide that any inheritance to that person receiving government benefits does not go to him outright.

Rather, the inheritance stays in a nested third-person special needs trust, and its terms are contained within the will or trust of the parents.

Then the person receiving government benefits never receives the inheritance outright. Instead, the inheritance stays in the special needs trust for his benefit. Accordingly, he does not lose his government benefits. Still the inheritance can improve the quality of his life.

At Meinzer Law Firm, P.C., we have over 20 years of experience helping clients achieve their goals regarding special needs trusts.

Again, I’m Andrew Meinzer of Meinzer Law Firm, P.C. If you know that you need our help, or even if you just have a question, please contact us and let us take care of you.