Donor funded sub-accounts, also known as third-party trusts, help families plan for the financial future of their loved one without affecting eligibility for government benefits. Typically, these trusts are funded by parents or grandparents through their will, living trust, retirement account or life insurance proceeds. If the account is established while the donor is alive, but won’t be funded until the donor passes away, then it is called a zero-balance or unfunded account. Unfunded accounts are charged a low annual maintenance fee and the original Joinder Agreement may be updated by the donor at any time prior to funding the account.
The benefit of establishing an account prior to the donor’s death, rather than having an attorney or personal representative complete the process after their death, is that we will then have the opportunity to become familiar with the beneficiary and the family’s wishes for that person before stepping in at, what is likely to be, a difficult time in their life. We develop a detailed profile on each beneficiary and ask donors to update that profile each year so that we have a better understanding of the beneficiary and a historical reference for their needs that will help us in providing for them after the donor’s death.
We strongly recommend that you meet with an attorney and/or a financial planner before making any final decisions about how to provide for your loved one in the future. The most important factors to consider when funding an account are how much you can afford, the type of lifestyle to which your child is accustomed and what his or her needs may be.
Families usually fund the trust with proceeds from their estate, life insurance death benefits, 401ks, retirement accounts or other means. The most common methods by far are through the estate via a Will or Living Trust and life insurance benefits. Sometimes other relatives may wish to contribute to the trust account as well.
When you do decide to move forward, it is important to make sure that your will or life insurance policy is properly worded in order to maintain the third-party status of the sub-account, and that any other relatives who may want to contribute are provided with the correct information on how to leave or donate money to the account.
“If (BENEFICIARY NAME) is living at my death, then (DOLLAR AMOUNT OR PERCENTAGE) shall be paid to KEY BANK NATIONAL ASSOCIATION, as the trustee for the OREGON SPECIAL NEEDS TRUST, dated November 25, 2015, for the benefit of (BENEFICIARY NAME), to be administered by The Arc of Oregon.”
If another family member, a grandparent for example, also wants to contribute to this account, the grandparent should use this same language in their legal document.
For a life insurance policy, you may list the pooled trust as the beneficiary using the following language:
KEY BANK NATIONAL ASSOCIATION, as the trustee for the OREGON SPECIAL NEEDS TRUST, dated November 25, 2015, for the benefit of (BENEFICIARY NAME), to be administered by The Arc of Oregon.
Donor funded accounts may be funded prior to the donor’s death; however, the donor must understand that once the money is deposited into the sub-account, it no longer belongs to the donor and can only be used for the benefit of the trust beneficiary. It is also important for donors to understand that, due to the conservative nature of our investments and the fees associated with maintaining a sub-account, the OSNT is not to be viewed as an investment growth opportunity. If your goal is to grow the money before leaving it to your loved one, we recommend that you establish an unfunded sub-account, invest the funds elsewhere, and note the above-referenced language in your Will or Living Trust.