Third Party Inactive Trusts
A third-party special needs trust can be created as an active or inactive trust. An active third-party special needs trust is funded the day it is opened. An inactive third-party trust is created with a $200 deposit from the donor(s). Both are administered by MSNT as trustee. The inactive trust can be funded and made active at a future date or after the death of the donor(s). Midwest Special Needs Trust will provide the forms and assistance to establish the inactive trust. A $200 deposit will pay the $100 enrollment fee, and $100 will be deposited in a pooled account. While the account is inactive, no fees are assessed, no interest is earned, and no taxes are reported. To make the trust active, all that is required is a minimum deposit of $1,000 and enrollment fee ($750) paid to Midwest Special Needs Trust.
An inactive third-party special needs trust can be established for a person of any age who is disabled and receiving public benefits or plans to apply for public benefits in the future. Anyone can establish an inactive trust for a person with a disability. There is no transfer penalty or look-back period applied to funds deposited to this trust. No Medicaid payback is required.
Inactive third-party trusts provide comfort and assurance for people who want to plan now and fund the trust later or after their death.
These are some effective ways the trust can be funded:
Using a trust or will: Individuals can create or amend a separate trust to contain provisions to make a distribution to the special needs trust.
Using life insurance: The special needs trust can be named as the beneficiary of life insurance policies such as a second to die, whole life or term life insurance.
Using 401(k) or IRA retirement accounts: A 401(k) can be liquidated and the cash proceeds deposited to the trust. A traditional IRA can be inherited and transferred to the life beneficiary’s special needs trust. MSNT will assist with the transfer and administration of Required Minimum Distributions.
Sale proceeds of a house: MSNT will assist the executor or personal representative with depositing funds to the trust once the home is sold. This option is often used as an alternative to leaving a life beneficiary with the burden of the maintenance and upkeep of a home.
All of these require advance planning to ensure the inactive third-party trust is named as beneficiary. In doing so, the funds become part of the special needs trust instead of being paid to the life beneficiary and negatively impacting their current or potential public benefits.
MSNT is a Social Security Administration-approved pooled trust organization; therefore the master trust documents have been reviewed and are compliant with Social Security and Medicaid requirements.
MSNT trust specialists are available to answer questions and schedule consultations by telephone or video conference at no cost. We encourage you to call us at 573-256-5055 or email mftbt@midwestspecialneedstrust.org.