MSNT Third Party Inactive Trust

Posted on May 19, 2020 in Uncategorized

MSNT Third Party Inactive Trust

Midwest Special Needs Trust (MSNT) understands the profound impact Covid-19 is having on our lives.  Our staff is committed to providing information and support to each person we serve and those in need of our services.   In recent weeks, MSNT has experienced an increase in calls from attorneys and families who are focused on writing their wills and estate plans.  Most have family members or clients who are disabled and receiving public benefits.  Their immediate concern is planning for their future.  Midwest Special Needs Trust can help with this.  As you create your plan for distributing your assets and property to your beneficiaries, MSNT can assist you with special needs planning with a Third-Party Trust. 

A Third-Party Trust can be created as an active or inactive trust.  An active Third-Party Trust is funded the day it is opened and administered by Midwest Special Needs Trust as Trustee.  An inactive Third Party Trust is created with a $200 deposit from the Donor(s).  The inactive trust can be funded and made active at a future date or after the death of the Donor(s).  Midwest Special Needs Trust will provide the forms and assistance to establish the inactive trust.  A $200 deposit will pay the $100 enrollment fee and $100 will be deposited in a pooled account.  While the account is inactive no interest is earned and no taxes are reported.  To make the trust account active, all that is required is a minimum deposit and enrollment fee paid to Midwest Special Needs Trust.

An inactive Third Party Trust can be established for a person of any age who is disabled and receiving public benefits or plans to apply for public benefits. There is no transfer penalty or look back period applied to funds deposited to this trust.   Any family member or friend(s) can establish an inactive trust and contribute to it once it is active.

Inactive Third Party Trusts provide comfort and assurance for people who want to plan now and fund the trust later or after their death.   These are some effective ways the trust can be funded:

  1. Using a testamentary trust:  individuals can create or amend a separate Trust to contain provisions to make a distribution to the special needs trust.
  2. Using life Insurance:  the special needs trust can be named as the beneficiary of life insurance policies such as a second to die, whole life or term life insurance.    
  3.  Using 401K or IRA retirement accounts:  a 401K can be liquidated and the cash proceeds deposited to the trust.  A traditional IRA can be inherited and transferred to the life beneficiary.  MSNT will assist with the transfer and administration of Required Minimum Distributions.
  4. Sale proceeds of a house:  MSNT will assist the executor or personal representative with depositing funds to the trust once the home is sold.  This option is often used as an alternative to leaving a house with maintenance and upkeep costs, to the beneficiary.

All of these require advance planning to ensure the inactive Third Party Trust is named as beneficiary.  In doing so, the funds become part of the special needs trust instead of being paid to the family member or beneficiary and impacting their public benefits.

Midwest Special Needs Trust trust specialists are available to answer questions and schedule consultations by telephone or video conference at no cost.  We encourage you to call us at 573-256-5055 or email