1st May 2015

The addition of two words to the Social Security Act could have a significant effect on the law governing special needs trusts. A special (or supplemental) needs trust is established for the benefit of a disabled individual to provide for his needs beyond those provided for by Supplemental Security Income, Medicaid or other benefits without disqualifying the individual for such assistance. Under current law, only a parent, grandparent, legal guardian or court can establish a special needs trust using the individual’s own assets, even if the disabled individual is mentally competent. The bipartisan “Special Needs Trust Fairness Act of 2015” (H.R. 670) proposes that the law be amended to allow the individual to establish such a trust himself.

1.  A special needs trust is an important part of a comprehensive estate plan when the grantor or a family member has a disability.

2.  A proposed change to the law governing self-settled special needs trusts would eliminate the need for court approval.

The proposed law would eliminate a significant burden for disabled individuals intending to establish a special needs trust for their own benefit. While there are several additional requirements by which the special needs trust must abide, allowing an individual to establish a special needs trust for his or her own benefit would remove an unnecessary obstacle for such planning.

Purpose and Requirements of a Special Needs Trust

A special needs trust is an instrument that allows a disabled individual to hold assets while continuing to qualify for government benefits. The terms of the trust must provide that the funds of the trust are to be used by the trustee for the benefit of the disabled individual only beyond what is provided for by government benefits. Without utilizing such a trust, an individual’s assets, gift or inheritance would have to be exhausted before qualifying for such benefits.

Establishing a Special Needs Trust

A special needs trust may be funded with the disabled individual’s own assets (first-party) or assets being gifted or bequeathed to the disabled individual (third-party). While a third-party trust can be established by anyone, a first-party trust must be established by the parent, grandparent or legal guardian of the individual or by a court. In other words, if an individual wants to establish a special needs trust for himself, it must be approved by the court—a step that the drafters of the new law believe is an unnecessary burden on the individual. Additionally, after the disabled individual’s death, a first-party special needs trust must repay any amounts received from the state before the remainder, if any, can be distributed.

A special needs trust is essential if you or a loved one have a disability and either individual owns significant assets or may receive a large sum, whether by inheritance, gift or legal settlement. It is a common misconception that a disabled individual cannot inherit from a Will or Trust or that assets can simply be left to siblings with the hope that they will take care of the disabled individual. It is crucial for disabled individuals and their families to understand the consequences of such shortcut planning and the benefits of using a special needs trust as part of a proper estate plan.


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