On December 13, 2016, President Obama signed the 21st Century Cures Act (H.B. 34). A major component of H.B. 34 was the Special Needs Trust Fairness Act, which now allows a disabled person to sign and establish their own first-party special needs trust. Previously, only parents, guardians, grandparents or a court could establish these trusts on behalf of the disabled person.
What is a First Party Special Needs Trust and what are its benefits?
A Special Needs Trust is a type of trust designed to protect the assets of a person with a disability. A “first-party” Special Needs Trust can be established to receive and hold assets (such as inheritance, lawsuit settlement, gifts) that belong to the person with the disability, who is also the beneficiary of the trust. The trust must be irrevocable, meaning that it cannot be changed or altered once established, and the beneficiary must be under the age of 65 at the time the trust is established.
It would be advantageous for individuals with disabilities who receive public benefits to have funds placed in a trust to be used to maintain their quality of life. To protect public benefits, funds that exceed the $2,000 individual limit can be placed in a Special Needs Trust. A Special Needs Trust is used to supplement, not replace, public benefits such as Supplemental Security Income (SSI) or Medicaid. The trust assets should be used to purchase things that public benefits do not provide, and the Trustee should be aware of the impact on public benefits of any distribution. At the death of the beneficiary, if assets remain, Medicaid must be reimbursed from the trust.
How does the Special Needs Fairness Act help?
The Omnibus Budget Reconciliation Act of 1993 (OBRA ’93 Special Needs Trust) negatively affected individuals who did not have a parent, grandparent, or legal guardian. A disabled individual who wanted to establish a Special Needs Trust had to petition a local court for the creation of their trust. This in turn led to unnecessary legal fees, wasted time and administrative confusion. The law in effect mistakenly presumed that all persons with disabilities lacked the mental capacity to handle their own affairs. However, The Special Needs Trust Fairness Act corrects this error by allowing individuals with capacity to set up their own trust.
How can I establish a Special Needs Trust?
You should always contact a qualified attorney to establish a special needs trust. Public benefit rules and regulations are very complex and trusts of this type also involve tax issues. You should be cautious when determining who will administer a trust of this type as trustee. Involving a competent professional is important to make sure that your public benefits are protected, as well as your trust assets. Feel free to contact our estate planning attorneys as we have substantial experience and can provide expertise concerning Special Needs Trusts and their administration.