A 3rd Party SNT is established according to the more standard procedures for creating trusts under State law. Under the law of all States, trusts are created as either intervivos trusts or as testamentary trusts. The term ‘intervivos”, is simply a legal term for saying “among the living”, which means the trust is established while the grantor is alive. By contrast, the term “testamentary” means that the trust is created after the grantor’s death through a Last Will and Testament. In those cases, the term, “settelor”, “testator”, “testatrix” or “grantor” are some of the many common terms for identifying the donor who establishes a trust and transfers, or grants, funds to the trust he or she established.
This type of SNT does not have to be irrevocable in order to preserve the eligibility of the SNT beneficiary for means-tested public benefits. However, if the SNT beneficiary has the power to revoke the SNTor demand distribution from the trust the SNT assets would be considered an available resource for Supplemental Security Income (SSI) and Medicaid purposes. The beneficiary’s ability to revoke the SNT or otherwise exercise control over the SNT may render the beneficiary ineligible to receive public benefits that have an income or asset limit. The SNT agreement should authorize the person establishing the third-party SNT and/or the trustee to amend the SNT to address later changes in the law or the circumstances of the beneficiary. Allowing for such limited amendments helps ensure that essential government benefits are preserved if an agency challenges the terms of the SNT.
The most important difference between third-party SNTs and first-party SNTs is what happens to SNT property when the beneficiary dies. Upon the beneficiary’s death, the third-party SNT is not required to use the remaining assets to reimburse any state(s) for the Medicaid benefits received by the beneficiary during his or her lifetime. As a result, this type of SNT is a useful planning tool for people who want to set aside property for a beneficiary with disabilities, preserve essential public benefits during that beneficiary’s lifetime, and remain in full control of where all of the remaining SNT assets will go upon the beneficiary’s death.