Myth 6: Special Needs Individuals Can’t Create Their Own Plan

By Holly Morris

On December 13, 2016, President Obama signed the 21st Century Cures Act, which reviewed the policies in place for special needs individuals to handle their own affairs. One crucial aspect that relates to estate and special needs planning is found in Section 5007 of the Act, “Fairness in Medicaid Supplemental Needs Trusts.” The purpose of this section is to amend 42 U.S.C. Section 1396p d(4)(a) to add the words “the individual” to the list of persons who may establish a first party or self-settled special needs trust (SNT) for a disabled individual. This corrects the error in the statute that presumes that all persons with disabilities lack the mental capacity to handle their own affairs.

The laws on this topic have expanded for many years. In 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993 (commonly referred to as OBRA 93). As part of a Medicaid overhaul, 42 U.S.C. Section 1396p d(4)(a) was enacted which allowed a parent, grandparent, guardian or a Court to establish a first party, or self-settled, SNT for a disabled individual under the age of 65 to be funded with that individual’s own assets. This change has since become an essential estate planning tool that allows disabled individuals to receive certain government assistance while still enjoying the benefit of their own assets to supplement their living expenses. Upon the death of the disabled individual or the termination of the trust, the benefits received during the disabled individual’s lifetime must then be repaid from trust assets. The 2016 change corrects the OBRA 93 language that did not provide a mentally competent disabled person the ability to establish his or her own self-settled SNT. This became challenging for many situations when a disabled person had no parent or grandparent to establish such a trust for them, forcing them to petition a Court for approval of their SNT; a costly and time-consuming process.

With the passing of the 21st Century Cures Act, disabled persons with the requisite mental capacity may establish their own self-settled SNTs without the need for assistance from other parties or Court approval. It is important to note that the disabled individual must still be under the age of 65 when creating the trust, and the trust must still contain a payback provision for government assistance. Also, it is important to distinguish the self-settled SNT from the third-party SNT, a different type of special needs trust which is established and entirely funded by a third party but exists for the benefit of a disabled individual. To ensure that you have the right SNT option, be sure to consult an attorney for a detailed analysis of your plan.

For more information or if you have any questions about how this may affect your estate planning, call us at 919-493-8411 to set up a consultation or review.


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