Special Needs Trust Establishment Rules Updated

On December 7th, 2016 the United States Senate passed H.R. 34, the 21st Century Cures Act. The bill passed the final vote in the Senate and is now on the way to the president for his consideration. H.R. 34 includes the Special Needs Trust Fairness Act, which includes changes and amendments that correct an offensive and outdated error in the law that wrongly presumed that all persons with disabilities lack the mental capacity to handle their own affairs, regardless of what their disability may entail. The president has already made clear his intentions to sign the bill into law.

The History of the Special Needs Trust

First Party Special Needs Trusts were first federally recognized by Congress in 1993 under 42 United States Code Section 1396p(d)(4)(A). Known colloquially as ‘special needs trusts’ or ‘D—4A Trusts,’ the trusts were acknowledged and given special status to grant special allowances to ensure that individuals with disabilities could use their savings and income to provide for their supplemental needs not covered by federal assistance programs while still being able to qualify for and benefit from long-term or permanent support from means-tested programs like Medicaid. Since its beginning in 1993, countless disabled people have made use of special needs trusts to take care of themselves without purposefully forcing themselves to become destitute to qualify for assistance programs like Medicaid.

Good Intentions, Poor Word Choices, Costly Side Effects

Unfortunately for those seeking to establish a special needs trust on their own behalf, due to the language under the 1993 law, special needs individuals could not set up special needs trusts for themselves as they were deemed automatically incompetent to do so because of the language used in the writing of the law. The only individuals allowed to set up a special needs trust for the special needs individuals were a parent, grandparent or legal guardian of the special needs individual.

This distinction in the law created awkward and costly side effects for special needs individuals everywhere. Special needs individuals who did not have a parent, grandparent or legal guardian were forced to petition their local probate court in order to create their special needs trust instead of being able to set it up themselves. This meant that the individual incurred extra legal fees and longer wait times to establish their special needs trust, completely counterintuitive to the intention of the law in the first place.

The Special Needs Trust Benefit

Special needs trusts can be a powerful tool for special needs individuals. Special needs trusts can be used to pay for housing and living expenses, including assisted living homes, nursing homes or even renovations to an existing home to render the residence accessible. These special needs trusts may be authorized to pay for:

  • Vocational, job and career related training
  • Employment of professional services i.e. attorneys, personal caregivers, accountants
  • Educational opportunities such as post-secondary education
  • Additional medical expenses not covered under supplemental assistance programs

Special Needs Trusts Are Highly Regulated and Complicated; Consult with a California Estate Planning Attorney Before Establishment

If you are a disabled individual living in California or a family member of a disabled individual who would like to protect your assets while still qualifying for federal assistance, you should sit down with Charles D. Stark in Sonoma County, CA. A special needs trust may not be the best option for you. Learn what other estate planning strategies are available to you. Contact our offices today to schedule your appointment and secure your future, 707-527-9900.

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