3rd Party Funded Trust
The Third Party Funded Trust is a trust which is created and funded by someone other than the individual with a disability, such as a parent, grandparent, or another loved one.
This type of trust gives the trustee almost total discretion to spend or not spend on the beneficiary’s needs, except that the trustee is always directed not to distribute assets in any way that reduces the beneficiary’s government benefits. In effect, funds cannot be spent on support items: basic food, basic housing, and basic medicine and medical care. Due to the discretion vested in the trustee, choice of the trustee is critically important. The trust walks the fine line of supplementing government supports for the individual without creating a disqualifying distribution of an asset for the individual.
There are some very basic differences between this trust and the two self-funded trusts:
- The Third Party Funded Trust permit the Settlor, the individual establishing the trust, to direct all residual funds at the time of the beneficiary’s death without any pay back to the government.
- The Third Party Funded Trust permits, perhaps even encourages, more than one concurrent beneficiary. The Third Party Funded Trust can use a family member or corporate fiduciary to serve as the trustee. Each trust is established and maintained individually and must be approved individually by the government.
It is important to remember that this type of trust cannot be self-funded. Once the individual is entitled to receive assets, a Third Party Trust cannot be established. A parent can set up a Third Party Funded Trust in his or her will and leave assets to the trust for the benefit of the beneficiary. If the parent leaves assets directly to the individual, a Third Party Funded Trust cannot be established since the individual would then already be entitled to the assets.
A Third Party Funded Trust is a very effective Supplemental Needs Trust option that requires advanced planning.
An important message from the Life Enrichment Trust…
Upon the death of a trust Beneficiary, Life Enrichment Trust, Inc. (LET) is prohibited by the Social Security Administration to make any further disbursements from the trust account, including payment for funeral expenses. In accordance to Social Security Administration requirements as outlined in their Program Operations Manual System (POMS) sections SI 01120.203B.1.h, and SI 0112m0.203B.3.a. and b., most type of payments, including those for funeral expenses, prior to reimbursement of medical assistance to the State(s), are prohibited. As a result, LET encourages all beneficiaries, or their advocates, to take advantage of prepaid irrevocable burial options that are available through many financial institutions. Most prepaid burial plans can be funded through the beneficiary’s trust account, but must be done so prior to death.