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New Rule Applicable to Special Needs Trusts

A Special Needs Trust (sometimes referred to as a Supplemental Needs Trust) is a useful tool that allows individuals with disabilities to have a beneficial interest in assets without losing their ability to receive certain types of government aid, such as Medicaid and Supplemental Security Income (SSI). The statutory framework for Special Needs Trusts was created over two decades ago in the Omnibus Reconciliation Act of 1993 (OBRA-1993).

Under the rules of means-tested state and federal assistance programs such as Medicaid and SSI, an individual may not qualify to receive benefits and assistance under those programs if his or her assets exceed $2,000 in value. For a disabled individual whose assets do exceed this threshold, he or she will need to draw down on those assets until they fall to or below $2,000 before he or she can benefit from these programs, a very detrimental outcome.

Parents, grandparents, and guardians of individuals with disabilities have used Special Needs Trusts in their estate planning to protect assets for the beneficial use of disabled loved ones while also maintaining the eligibility of those loved ones to receive much-needed SSI and Medicaid benefits. However, the law did not provide for an individual who becomes disabled to set up a special needs trust in his or her own behalf without going to court.

Changes Brought by the Special Needs Trust Fairness Act

Now, an individual who becomes disabled and who otherwise has the requisite capacity to create a trust (generally, a person with a disability such as blindness but who lacks a significant cognitive impairment) can do so without the requirement that the trust be established by a third party, or receiving court permission. Recognizing the blind spot in the law regarding Special Needs Trusts, Congress last year passed the Special Needs Trust Fairness Act ("SNTFA"), which was signed into law by President Obama on December 17, 2016.

The SNTFA provides that a Special Needs Trust established by a disabled individual under the age of 65 for that individual's benefit will qualify so long as the other requirements of a Special Needs Trust are met.

As with a Special Needs Trust established by a third party, the trust assets are used for the benefit of the disabled individual, but ownership of the trust assets lies with the trust, not the individual. A named trustee administers the trust.

Also, upon the death of the trust beneficiary, any assets remaining in the trust must be repaid to the state that provided medical assistance up to the value of the assistance that had been provided.

A beneficiary of a Special Needs Trust must have a disability meeting the definition used by the Social Security Administration.

What are Some Appropriate Uses of Special Needs Trusts?

Some appropriate uses of assets held in a Special Needs Trust for the trust beneficiary's interest include certain medical and dental purposes, such as insurance premiums, some medical procedures, supplemental nursing care, rehabilitative therapy and occupational therapy, as well as non-medical purposes such as companionship, travel, entertainment and telephone service. These are examples, and do not constitute an exhaustive list.

Seek an Experienced Attorney

There are specific requirements necessary to establish and implement a valid Special Needs Trust. It is advised that you consult an attorney experienced with Special Needs Trusts to ensure your best interests are protected.

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