Ask the Expert: Govt. can't touch third-party trust

We want to put funds in a trust for a disabled child who receives government assistance. I've been told that any funds left in the trust at his death must revert to the government, and not to his surviving siblings. Is this true?

Not necessarily. If this is a third-party trust - i.e., a trust funded with assets that did not originally belong to the disabled child - you can name anyone you choose to inherit what remains. It's permanently sheltered from the government.

The best way to leave money to a disabled person without inadvertently disqualifying him for government assistance is to create a supplemental needs trust for his benefit, says Donald Hecht, a Garden City elder-law attorney. This type of trust doesn't affect aid eligibility because it can be used only to supplement government assistance, not to replace it.

A trust that's funded for your child with his own money is a first-party trust. When he dies, the government is entitled to recover everything it paid for his care from any remaining trust assets. But if you fund the trust with money that doesn't belong to him, it's a third-party trust; you can name the child's siblings (or anyone else) to receive whatever is left in the trust. One caveat: Parents cannot set up a third-party supplemental needs trust for a child who is younger than 18. That's because you have a legal duty to support your minor child, Hecht explains. Your assets are deemed to be available for his care and can't be sheltered from the government.

The bottom line When a third-party supplemental needs trust is properly drawn for a child older than 18, the government has no claim on the trust assets during his lifetime or after his death.

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