What is a defining feature of a third-party self-settled trust?

A third-party self-settled trust is characterized by the fact that it is created for the benefit of a third party. This means that the assets held in the trust are not owned by the beneficiary, but instead, they are placed in the trust by another individual or entity for that beneficiary’s benefit. Such trusts are often utilized in financial and estate planning to provide financial support while potentially safeguarding those assets from certain legal claims or creditors.

In the context of a self-settled trust, it is essential to recognize that the trust cannot typically be funded by the beneficiary themselves if the goal is to protect those assets from creditors, which is a nuanced aspect of asset protection laws. Other options, such as direct management by the beneficiary or funding by the beneficiary, do not align with the definition and established practices surrounding these types of trusts. By clarifying that the trust is for the benefit of a third party, it emphasizes the primary purpose of establishing such a trust, which revolves around providing support while protecting the beneficiary's interests in a legally structured manner.