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Do you need a third party special needs trust?

Planning for the future is something we have been taught to do since we were children. Plan for college. Plan for a career. Plan for your family. Plan for retirement. The plan we concentrate least on is the one for after retirement: The future that requires long-term care possibly in a nursing facility.

We tend to think about our futures only up to the point just before we get too old or too sick to take care of ourselves. Unfortunately, this often leaves our loved ones in a position where they have to make some hard decisions, especially in a situation where a parent is suffering from a mentally debilitating disease like Alzheimer's.

Things can become even more difficult if the primary caregiver, such as a husband or wife, dies while the surviving spouse with Alzheimer's still needs care. This is where planning for a third party special needs trust (SNT) comes in.

Third party SNT

A special needs trust can be drafted by the primary caregiver(s) of an individual who cannot take care of him- or herself. For example, parents with an autistic child can create such a trust for their child in case something should happen to them. The term "third party" does not refer to the caregiver drafting the trust. Instead, it means that the trust is funded by a third party. For instance, if the parents of the autistic child were to take out a life insurance policy on themselves and name the trust as the beneficiary, then the insurance company that pays the proceeds on the policy would be the third party.

Purpose of an SNT

The primary purpose of an SNT is to ensure that a loved one with special needs can continue receiving care after the caregiver passes away. The trust can protect your loved one's assets from people who might try to defraud your loved one or from a caregiver who cannot successfully manage money. In addition, you might be able to keep the required distributions low enough that your loved one still qualifies for programs such as Medicare or Medicaid.

If you have a parent or other loved one suffering from dementia or Alzheimer's and you are worried about what will happen if you pass away first, then a third-party special needs trust might be a good option. When it comes to planning for the future and its eventualities, it is never too early to start.

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