When is the Best Time to Set Up a Third-Party Special Needs Trust: Testamentary Special Needs Trusts v. Stand-Alone Special Needs Trusts

 Posted on December 09, 2022 in Estate Planning

 Special needs trusts are designed to financially provide for disabled loved ones without impacting the disabled person’s eligibility for governmental assistance programs. There are two types of special needs trusts and the type of trust that you create will determine a number of key factors related to the disabled person receiving the benefits of the trust.

Testamentary Special Needs Trust v. Stand-Alone Special Needs Trust

The first type of special needs trust is called a testamentary special needs trust. This type of trust is created by including certain language in the creator’s will or trust. A testamentary special needs trust does not go into effect until the creator of the will or trust dies. 

Alternatively, there is a stand-alone special needs trust. A stand-alone special needs trust (also called a free-standing special need trust) is effective as soon as it is created.

Important Factors to Consider When Determining the Right Special Needs Trust for You

Accessing Benefits

A stand-alone special needs trust allows for assets to be transferred to the trust immediately and gives the creator of the trust the ability to have control over the assets that are included in the trust while they are alive. Additionally, the beneficiary of a stand-alone special needs trust can have access to its funds immediately. With a testamentary trust, the beneficiary must wait not only until the creator of the trust passes away, but they may have to wait even longer due to the probate court process. 

Assets from Multiple Sources

Testamentary special needs trusts only include assets from the estate of the person that created the will or trust. On the other hand, stand-alone special needs trusts may be gifted assets from multiple sources. 

Naming the Trust as a Beneficiary

A stand-alone special needs trust can be named as a beneficiary on loved one’s accounts (for example, a retirement account or a life insurance policy). A testamentary special needs trust cannot. 

Trust Assets Subject to Creditors

A testamentary special needs trust is subject to its creator’s creditors as it goes through probate. Creditors of the creator’s estate must be paid before assets can be transferred to the testamentary special needs trust. This means there is a risk with testamentary special needs trusts that after the probate process there are no funds left after paying creditors to give to the disabled beneficiary. 

Privacy

Further, a stand-alone special needs trust is kept private because it is not subject to probate. A testamentary special needs trust created by a will is subject to probate. A will that goes through the probate process becomes a public document and is accessible by anyone.

CONTACT PEACE OF MIND ASSET PROTECTION, LLC TODAY. WE ARE YOUR OSWEGO SPECIAL NEEDS ATTORNEY

Special needs trusts are created to ensure the quality of life we desire for the people we love. These needs are crucial to outline in your will or trust and you should discuss your options with an attorney today. Hiring effective and experienced estate planning council is critical to ensuring your goals are met and your estate planning is done effectively. Peace of Mind Asset Protection, LLC concentrates in special needs trust, estate planning, and disabled in the Yorkville, Oswego, and Kendall County and nearby areas. Our special need trust lawyers utilize asset protection strategies to protect the economic security and peace of mind of our clients. Peace of Mind Asset Protection, LLC helps disabled adults and their families in the Kendall County areas of Yorkville, Oswego, Plainfield, Joliet, Bristol, Newark, Plano, and nearby areas. To receive a free initial consultation, call 630-882-2467 or fill out our online form with your relevant information.