Shalloway and Shalloway, P.A.

Individuals with Disabilities May Now Establish Their Own Special Needs Trusts

Disabled boy on computer

In the past, a self-settled special needs trust (SNT) could only be established by a parent, grandparent, guardian, or court. On December 13, 2016, the 21st Century Cures Act (H.R.34 — 114th Congress (2015-2016)) changed that. Section 5007 of the Act, titled “Fairness in Medicaid Supplemental Needs Trusts” incorporates language from the Special Needs Trust Fairness Act of 2015 by amending an existing statute. By adding two words (“the individual”), persons who are mentally capable may now establish their own self-settled special needs trusts.

This corrects an error made in the Omnibus Budget Reconciliation Act of 1993(OBRA-1993). Congress enacted OBRA-1993 as part of a Medicaid overhaul. This law, 42 U.S.C. Section 1396p d(4)(A), only permitted a parent, grandparent, guardian or court to establish a self-settled SNT for an individual with disabilities under the age of 65 with the individual’s own assets.

However, OBRA-1993 also provided that assets contained in a self-settled SNT do not disqualify the individual with disabilities from continuing to receive those government benefits. Since then, self-settled SNTs have become an vital planning tool for many individuals with disabilities who are receiving benefits and subsequently receive funds from an inheritance or otherwise. But for the ability to create a self-settled SNT, those individuals would lose eligibility for programs such as Supplemental Security Income and Medicaid. The assets contained in the SNT may be used to improve the quality of life of the individual with disabilities without sacrificing the government benefits. However, on the death or earlier termination of the self-settled SNT, Medicaid must be repaid for the cost of care it provided to the individual.

A plain reading of the law did not permit individuals to establish their own SNTs. Some think it was a simple oversight, as another mechanism in the same section of the law ─ a pooled SNT ─did allow individuals to self-fund. The pooled SNT basically served the same function as the self-settled SNT except that a non-profit association must manage the pooled trust and the individual with disabilities can’t select the trustee of the trust. The illogical distinction between a pooled SNT and a self-settled SNT set up by the individual, existed for over 23 years and was strictly enforced.

The inability to set up their own self-settled SNT was inconvenient and embarrassing for individuals who did not have living parents or grandparents and did not need guardians. Consequently, those persons were forced to spend time and money to go to court and have a judge approve the trust (directly or through a guardianship proceeding). Many special needs advocates felt that the law was discriminatory and didn’t grant capable individuals the independence to make their own decisions in establishing trusts.

Prompted by joint advocacy initiatives from the National Academy of Elder Law Attorneys and Special Needs Alliance, legislation was introduced in May 2013 in the 113th Congress and eventually became law when added to the 21st Century Cures Act, which both the House and Senate finally approved in December 2016. Now, a person with the ability to make financial decisions can establish their own SNT.

Shalloway & Shalloway, P.A., is located in West Palm Beach, FL and serves clients in Palm Beach, Broward, Dade, Okeechobee, Martin and St. Lucie Counties.

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