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Disabled individuals now able to set up a special needs trust

Why couldn’t mentally capable, but disabled individuals set up a special needs trust (SNT) for themselves in the past? A legislative oversight from more than 20 years ago is the basic answer.

The 21st Century Cares Act corrected the issue in December 2016. The legislation added the word “individual” to a list of people – it had previously only included parents, grandparents, legal guardian of the individual or the court – authorized to set up a first-party SNT. In this post, we explain the importance of the change and the general requirements for SNTs that have not changed.

Adults with disabilities

For individuals with disabilities a means test affects whether they qualify for public benefits (generally Social Security Income and Medicaid). SNTs prevent an inheritance or personal injury award from negatively affecting these benefits.

Eligibility rules can be complicated. A mistake can cause long-term harm making it essential to discuss concerns with an attorney experienced with disability special needs planning.

In the past, if someone living with a disability did not have a living parent or grandparent and did not qualify for/need a court-appointed guardian, the process to establish a SNT was tedious. It required a trip to court and petition to a judge – costly and often a degrading experience.

In August, the Centers for Medicaid and Medicare Services sent a formal letter to state Medicaid directors with general guidance. The letter acknowledged that the change was an effort to support the “independence of individuals with disabilities by permitting them to set up a special needs trust on their own behalf, rather than having to rely on a third party to do so.”

General SNT requirements

Now, if you are disabled and have the capacity you can set up your own trust.

What makes a special needs trust unique. Here is a basic list:

  • You need to have a disability and be under age 65
  • It must contain your assets and be established for your benefit 
  • Direct that any amount remaining in the trust at your death go to the state, up to the total medical assistance paid out by the state on your behalf.

This federal law was the second in the last few years to allow people with disabilities greater use of and access to their funds.

The other legislation created ABLE accounts, which are also excluded from resources when it comes to means-tested government benefits. We will discuss ABLE accounts in our next blog and provide an update on access to the accounts in Colorado.

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