Special Needs Trusts are now Easier to Create

Posted on: December 16th, 2016 by Mark R. Friedman

This past Tuesday, President Obama signed into law the 21st-century Cures Act.  This new law is broad and sweeping, and passed with bipartisan support.  It includes funding for new medical research, Vice President Biden’s “cancer moonshot” program to find a cure for cancer, and, critically for our work, passage of the Special Needs Trust Fairness Act, which remedies a long-standing problem with special needs trusts.

There are two kinds of special needs trusts (SNT’s) – first-party special needs trusts, and third-party special needs trusts.  For first-party SNT’s, the trust is funded using the beneficiary’s own money.  In other words, a person with disabilities is putting his own money in trust.  With third-party SNT’s, the money comes from someone else, a third party.  For example, if parents want to leave money to their child with disabilities when they pass away, their will should include a third-party SNT.  By contrast, if a person with disabilities wins money in a lawsuit, that’s his own money and it should be held in a first-party SNT.

SNT’s must comply with Medicaid and Social Security regulations in order for the beneficiary to qualify for disability benefits.  There are much more stringent requirements on first-party SNT’s than on third-party SNT’s.  First-party SNT’s must comply with 42 USC 1396p(d)(4).  That provision said that, for the most common type of first-party SNT, the trust must be established by a parent, grandparent, guardian or court.

This meant that the beneficiary could not establish his own trust, even if he had capacity to do so.  Oftentimes, beneficiaries would have to go to court to establish a first-party SNT, increasing the cost and difficulty of doing so.  This requirement always seemed arbitrary, unnecessary and unfair, and the recent 21st-century Cures Act eliminated it.  Beneficiaries can now establish their own first-party SNT’s.  This is a positive step for our clients, and we look forward to using this provision to help our clients protect their eligibility for Medicaid, SSI and other disability benefits.

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