Federal Law Changes the Way Some Special Needs Trusts are Created

2016 brought a significant change to the way self-settled special needs trusts for people under the age of 65 are created. In the past, federal law, under 42 U.S.C §1396p(d)(4)(A), would not allow a person with a disability to create his or her trust. Instead, the law required a parent, grandparent, guardian or court to establish the trust. 

The law overlooked the fact that having a disability does not mean the individual is incompetent and unable to sign legal documents. Nevertheless, for many years, individuals with disabilities were forced to ask parents, grandparents, or a court to create a trust on their behalf, an additional process which further complicated an already complex process.

The Special Needs Trust Fairness Act addressed this oversight and added language to the law that allows a competent disabled individual to create his or her own trust. 

The law now reads:

(A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1382c(a)(3) of this title) and which is established for the benefit of such individual by , a parent, grandparent, legal guardian of the individual, or a court if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter. — 42 U.S.C §1396p(d)(4)

Today, a disabled individual receiving an inheritance, a legal settlement or judgment, gifts, or other sources of funding may work with an attorney to establish a special needs trust without the additional time and expense necessary to obtain court authorization to establish a trust and without the loss of dignity that occurs from being denied the ability to act for oneself. Of course, there will always be instances where it is necessary and appropriate for a parent, grandparent, guardian or court to create the special needs trust; but, now, the right and desire of a disabled individual to direct his or her life has been restored.