By: Matthew M. Shafae, Attorney
Litherland, Kennedy & Associates, APC, Attorneys at Law
Special Needs Trusts (also called Supplemental Needs Trusts) are specific types of trusts that allow a disabled person to be the beneficiary of a trust while not interrupting his/her eligibility to receive government assistance. Without a Special Needs Trust, persons with disabilities risk losing government benefits if they receive an inheritance, a personal injury award, or receive other funds.
In 1993, the Omnibus Budget Reconciliation Act codified the ability for persons with special needs to have a Special Needs Trust that would supplement the government benefits they were otherwise receiving. However, due to an unfortunate omission, the law did not permit an individual who was mentally capable to establish their own Special Needs Trust (also known as a self-settled Special Needs Trust). The trusts had to be created by a third party—a living parent, a grandparent, or by a court—even though the individual with special needs was funding the trust with his/her own assets. The inability to set up their own Special Needs Trust is especially cumbersome for individuals who do not have living parents or grandparents and do not need a conservator (guardian). Individuals who lacked living parents or grandparents had to hire a lawyer to commence potentially costly and time consuming court proceedings so that a court could establish the trust on their behalf. Aside from the time and expense, it is degrading for an otherwise capable person to depend on others to establish a Special Needs Trust, which is contrary to public policy encouraging a person’s independence whenever possible.
The 23-year-old omission has finally been corrected. As of December 13, 2016, the 21st Century Cures Act was signed into law, which contains the “Fairness in Medi-Cal Supplemental Needs Trusts”. This new legislation adds two words— “the individual”—to the laws that govern Special Needs Trusts. Now, a person with the ability to make financial decisions can establish their own Special Needs Trust. The passage of this legislation is due, in large part, to the advocacy initiatives of the Special Needs Alliance and National Academy of Elder Law Attorneys. The attorneys in our office are proud to be members of the National Academy of Elder Law Attorneys.
Self-settled Special Needs Trusts (the trusts described above) should not be confused with third-party Special Needs Trusts. Third-party Special Needs Trusts are trusts funded with assets from family members or other sources, and not with the disabled person’s own assets. Third-party Special Needs Trusts are a common estate-planning tool used to improve the quality of life of the individual with disabilities.
- Roth IRAs Can Be a Great Planning Strategy: Basics - October 27, 2021
- Reasons an Estate Plan Could Be Challenged: Part 1 – Formal Requirements - January 24, 2020
- Estate Tax Exemption Amounts to Increase - November 6, 2019
