Special Needs Planning Legal Update
The Special Needs Trust Fairness Act
On December 13, 2016, President Barack Obama signed into law the 21st Century Cures Act. Buried in this law is the Special Needs Trust Fairness Act– a sentence long provision to correct a 23-year-old error by adding two simple words, "the individual."
What Adding "The Individual" Means
Before "the individual" provision was added, disabled individuals without living parents or grandparents found themselves having to go to court in order to create a special needs trust under OBRA-1993, the Omnibus Budget Reconciliation Act of 1993, before they could protect their assets and maintain eligibility for governmental benefits like Supplemental Security Income (SSI) and Medicaid.
OBRA-1993 is a law overhauling Medicaid and authorizing parents, grandparents, legal guardians, and courts to create a special needs trust to hold, protect, and use the assets of individuals who are disabled for Social Security purposes. Before OBRA-1993 was enacted, a person under the age of 65 who was disabled and had assets over $2,000 would need to spend their money (with few exceptions) down to $2,000 before being eligible for Medicaid, Supplemental Security Income (SSI), and any other means-tested benefits programs. It didn't matter where the assets came from– whether the money was from a settlement after a car crash, an inheritance, or savings generated before becoming injured. The disabled person would have to remain at or below $2,000 in assets to continue receiving SSI and Medicaid. For a young person, this would mean a lifetime of poverty. The special needs trust OBRA-1993 was a shield against this.
Under OBRA-1993, a disabled individual's assets held within a properly drafted special needs trust would be disregarded when determining whether that disabled individual had spent down his or her assets to $2,000. So, a person could essentially keep their assets in the form of a special needs trust. In exchange, when the disabled individual died, the states which had provided care over his or her lifetime would be entitled to repayment from the remaining assets in the trust. Despite this drawback, the special needs trust became an immensely valuable tool for assisting young disabled people.
However, because of how Congress wrote the law (only including parents, grandparents, legal guardians, and courts), for the two decades that followed, disabled individuals found themselves having to go to court to create a special needs trust if they did not have living parents or grandparents. This added and unnecessary step amounted to extra time and legal fees.
Benefits of the Special Needs Trust Fairness Act
Now, with the new law signed in December of 2016, many people under 65 with disabilities can put their funds into their own special needs trust and become eligible for the many means-tested benefits and programs available to them– all without going to court or living in poverty for the remainder of their lives.
Having an attorney who can properly draft a customized, well-planned special needs trust is still crucial to disabled individuals and their loved ones.
In addition to the complexity required to draft a special needs trust properly, there are multiple kinds of trusts with confusingly similar names and with some trusts having multiple names for the same type of trust. For example, there are the first party special needs trusts (also known as (d)(4)(A) trusts) contained in OBRA-1993 discussed above. There are also third party trusts which lack the payback provision of the (d)(4)(A) trust. If you're creating a special needs trust for your spouse, you use yet another kind. Finally, some in the legal field call them "supplemental needs trusts" instead of "special needs trusts." Each kind of trust has specific rules and requirements that need to be met, and the similar names can be a trap for the unwary.
A knowledgeable attorney who knows the right techniques for unique situations can help disabled individuals avoid substantial costs and risk of becoming ineligible for Medicaid or SSI. Special needs trusts will likely remain a complex area of the law, but now fewer people will have to go to court to create one, and that is great news for the special needs community.