On December 7, 2016, the Senate approved the 21st Century Cures Act (HB 34). Included in this legislation is the Special Needs Trust Fairness Act (the “Act”). The Act now adds provisions to allow disabled individuals to establish their own self-settled special needs trusts.
In general, special needs trusts allow disabled beneficiaries to receive the benefit of trust assets without disqualifying those beneficiaries from receiving means-tested benefits, such as Medicaid and Supplemental Security Income. A special needs trust allows for trust assets to be used to pay for expenses that are not covered by these means-tested governmental programs, without disqualifying a beneficiary’s eligibility for the programs.
Special needs trusts may be established using assets of family members or other third parties (third party trust) or using the assets of the disabled beneficiary (self-settled trust). However, under the law as established in 1993, in order to create a self- settled special needs trust, the trust has to be established on behalf of the disabled individual by a parent, grandparent, guardian or court; the disabled individual may not establish a first-party special needs trust on his/her own. See 42 U.S.C. 1396p(d)(4)(A).
This has been problematic in that most disabled individuals have the capacity to make decisions to create a trust. Furthermore, many adults with disabilities do not have living parents or grandparents, do not have or need legal guardians and do not have easy access to the courts. Individuals without parents, grandparent and guardians have been faced with undue burdens. These individuals have needed to go to the expense and endure a lengthy judicial process to petition a court to create a self-settled special needs trust.
The Special Needs Trust Fairness Act makes a simple modification to 42 U.S.C. 1396p(d)(4)(A). The amendment adds a phrase allowing the individual to establish his/her own self-settled special needs trust (“established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual, or a court”). Disabled beneficiaries with mental capacity to establish their own trust are no longer required to seek the assistance of their parents, grandparents, guardians, or the court to form a special needs trust. Disabled individuals may now act on their own behalf and establish and fund a self-settled special needs trust, without any undue legal burdens.
The 21st Century Cures Act and Special Needs Trust Fairness Act were signed into law by President Obama on December 13, 2016.