Breaking Down Barriers With Special Needs Trusts

Individuals with disabilities who receive financial assistance from needs-based governmental programs such as Medicaid and Supplemental Security Income (SSI) must meet strict income and asset limit eligibility requirements in order to qualify for benefits. This makes it hard for family members, or disabled individuals themselves, to use their own money to supplement the disabled person’s income. Special Needs Trust (SNTs) provide a way for disabled individuals to receive additional funds without jeopardizing government benefits.

SNTs can be established by a third party (such as parents wanting to leave an inheritance), or “self-settled” with assets owned by the disabled individual (such as a lawsuit settlement). Assets of a third-party SNT can be distributed to others upon the death of the disabled beneficiary, but any assets remaining in a self-settled SNT must first be used to reimburse Medicaid for benefits paid.

In 1993, Congress passed legislation to permit a parent, grandparent, guardian or court to establish self-settled SNTs for disabled individuals under the age of 65, using assets owned by that individual. However, a mentally competent, but physically disabled individual could not independently establish his or her own SNT. For competent, but physically disabled individuals without living parents, grandparents or guardians, their only recourse was to ask a court to either establish a self-settled SNT for them or appoint a guardian who could do it, a process that was cumbersome, time consuming and expensive.

Effective December 13, 2016, the federal Special Needs Trust Fairness Act allows mentally competent individuals to establish their own self-settled SNTs, using their own funds, without the need to involve a parent, grandparent, guardian or a court. The assets of the SNT can be used to pay expenses not covered by a governmental program without jeopardizing eligibility. At death, the remaining assets must still be used to reimburse Medicaid for services provided.

While this relatively minor change in the law must still be enacted at the state level in order to be fully effective, it is nonetheless being heralded as ending two decades of disparate treatment of individuals with disabilities.

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