Legal Definitions - third-party trust

A third-party trust is a type of special needs trust that is created using assets that did not belong to the beneficiary before being placed into the trust. This means that the funds or property used to fund the trust were not originally owned by the person with special needs.

For example, a parent may create a third-party trust for their child with special needs using funds from their own savings account or life insurance policy. The child with special needs is the beneficiary of the trust, but the assets in the trust did not originally belong to them.

Another example could be a grandparent creating a third-party trust for their grandchild with special needs using funds from their own estate. Again, the assets in the trust did not originally belong to the beneficiary.

These examples illustrate the concept of a third-party trust because the trust is funded with assets that did not belong to the beneficiary before being placed into the trust. This type of trust can be beneficial for families who want to provide for their loved ones with special needs without affecting their eligibility for government benefits.