Which special needs trust is funded by gifts or bequests from others and may be set up in a will?

Which special needs trust is funded by gifts or bequests from others and may be set up in a will?

• A. First-party special needs trust
• B. Self-settled spendthrift trust
• C. Generation-skipping trust
• D. Third-party special needs trust

Answer: (D)

The idea being tested is that a third-party special needs trust is funded by assets coming from someone else, such as a parent or grandparent, and can be established in a will to fund the trust at the donor’s death. This type of trust keeps the disabled beneficiary’s own resources separate from the trust, which helps preserve eligibility for needs-based government benefits. Because the assets belong to the third party, not the beneficiary, there’s typically no Medicaid payback requirement to the state, unlike a first-party special needs trust that uses the beneficiary’s own assets. A testamentary third-party SNT can be irrevocable and structured to provide supplementary support for the beneficiary without jeopardizing access to benefits. In contrast, a first-party special needs trust is funded with the beneficiary’s own assets and carries potential Medicaid payback rules; a self-settled spendthrift trust is generally created by the beneficiary using their own resources to protect assets from creditors; and a generation-skipping trust is primarily about tax planning across generations and not specifically about funding a beneficiary’s disability needs with gifts or bequests from others.

The idea being tested is that a third-party special needs trust is funded by assets coming from someone else, such as a parent or grandparent, and can be established in a will to fund the trust at the donor’s death. This type of trust keeps the disabled beneficiary’s own resources separate from the trust, which helps preserve eligibility for needs-based government benefits. Because the assets belong to the third party, not the beneficiary, there’s typically no Medicaid payback requirement to the state, unlike a first-party special needs trust that uses the beneficiary’s own assets. A testamentary third-party SNT can be irrevocable and structured to provide supplementary support for the beneficiary without jeopardizing access to benefits.

In contrast, a first-party special needs trust is funded with the beneficiary’s own assets and carries potential Medicaid payback rules; a self-settled spendthrift trust is generally created by the beneficiary using their own resources to protect assets from creditors; and a generation-skipping trust is primarily about tax planning across generations and not specifically about funding a beneficiary’s disability needs with gifts or bequests from others.