Protecting Beneficiaries with a Third Party Trust

We are seeing more and more that our nation is struggling with mental illness with the acknowledgment of maternal mental health issues and climbing suicide rates for all ages.  In 2020, “more than 87,000 Americans died of drug overdoses over the 12-month period that ended in September, according to preliminary federal data, eclipsing the toll from any year since the opioid epidemic began in the 1990s. The surge represents an increasingly urgent public health crisis, one that has drawn less attention and fewer resources while the nation has battled the coronavirus pandemic,” according to the New York Times. 

If you find yourself in a similar situation and want or need to protect a loved one (a beneficiary), estate planning can be of assistance. Electing to use a Third-Party Trust is an especially efficient way to accomplish this.

 

What is a Third-Party Trust?

When a trust is created with assets belonging to anyone other than the beneficiary or the beneficiary’s spouse, it’s a third party trust. The beneficiary has nothing to do with creating this trust. It can be either revocable (changeable)or irrevocable without having negative consequences for the beneficiary. What’s important is that the beneficiary not be given any right to control the trust or the trustee, or to demand distributions. These trusts are often created as part of a family’s estate planning when a child has disabilities, including serious mental illness or addiction disorders. 

 

Important rules regarding Third-Party Trusts are:

• The trust cannot provide food or shelter directly or indirectly.
• It cannot create any income or offer cash directly.
• It can provide some utilities, but not others.
• It can provide physical therapy and other medical treatments, companionship and even some clothing.
• It can provide education, entertainment and travel.
• It can provide furniture and certain furnishings.

Properly designed, trusts can receive retirement funds or other assets without creating negative repercussions. The goal is to help without compromising any government or public benefits that the beneficiary may be entitled to and may need, so be sure you work with a professional estate planning attorney to be sure. Because these situations can be incredibly complex it is important to have a professional collaborate. We would be happy to discuss your situation during a free consultation.