Thursday, December 8, 2016

Congress Passes Special Needs Trust Law - Fixes 23 Year Old Error


The Special Needs Trust Fairness Act provides that individuals with disabilities can now create their own special needs trusts instead of having to rely on others. The Act was included as Section 5007 of the 21st Century Cures Act which was signed into law by the President on December 13, 2016.

The Act corrects an error in existing law that has created needless delay and legal expense for many disabled individuals. Congress first established rules for special needs trusts in 1993. One common type is the self-funded special needs trust (also known as a (d)(4)(A) trust) which is authorized by Section 42 U.S.C. § 1396p(d)(4)(A) of the Medicaid law.
This type of trust is created from the funds of a disabled beneficiary.  It allows a beneficiary who is receiving Medicaid to protect some savings for later use in paying for critical living expenses without losing their equally critical Medicaid benefits.
But due to a drafting error in the 1993 law disabled individuals have not been permitted to create their own trusts. For the past 23 years the law has stated that only a parent, grandparent, legal guardian of the individual, or a court can establish this type of special needs trust. In effect the law has presumed that the disabled individual lacks the mental capacity to handle this aspect of their financial affairs.
This has resulted in unnecessary delays and legal and court costs for individuals who wish to establish a special needs trust but do not have parents or grandparents to help them. These individual have been forced to petition the court to set up the trust.
Under the new law capable individuals with disabilities are now able to set up their own special needs trust without having to petition the court and undergo unnecessary legal costs.
In recognizing that many disabled individuals are competent to manage their finances this new law is similar to another recent law which authorizes some disabled individuals to create ABLE accounts.  ABLE accounts are useful but have many restrictions that do not apply to special needs trusts.
Disabled individuals should seek the advice of an experienced elder law/special needs lawyer to help evaluate their options. If you reside in Pennsylvania, you can contact my law firm, Marshall, Parker and Weber, for expert advice.
Further Reading
The Special Needs Trust Fairness Act is located in Title V, Section 5007 (page 440), of the 21st Century Cures Act.
Pass the Special Needs Trust Fairness Act (Marshall, Parker and Weber blog, September 28, 2015).
New Law Authorizes PA ABLE Savings Accounts (Marshall, Parker and Weber blog, April 19, 2016).

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