By Thomas Begley, CELA, of Begley Law Group in Moorestown, New Jersey. His firm specializes in special needs planning, special needs trusts, guardianship, and estate planning.
Several factors should be considered when establishing a third-party special needs trust (TPSNT) for a child with disabilities.Concerning the question of when the TPSNT should be funded, for most people, the answer is that it makes little sense to fund the trust before the death of the surviving parent. Once the trust is funded, it must be administered. Administration involves filing income tax returns and frequently paying trust administration fees. In some instances, annual accountings may be required. It is usually simpler to have the parents pay for the expenses the trust would otherwise pay during the parents’ lifetime.
If the child with disabilities qualifies as a medical dependent, the parents may be able to claim some expenses as a medical deduction on their income tax. The exception would be in situations in which the parents are in a very high estate and gift tax situation. In those cases, it may make sense to fund the trust immediately to take advantage of current estate and gift tax laws. In those situations, the trust obviously cannot be a trust under a will but must be a standalone TPSNT.
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