Time and Money Savings Expected for Special Needs Trusts

A new law, that streamlines the process of establishing special needs trusts, will greatly help people who are disabled, under 65 years of age, mentally competent and receive a moderate amount of assets, either through a settlement or through a direct inheritance. It will now, in most cases, be more cost-effective to establish a self-settled special needs trust to manage the assets of a disabled individual because they or their guardian will no longer need to pay a lawyer to petition the court for authorization to establish the trust, which often added between $1500-$5000 in lawyer’s fees.

“The Special Needs Trust Fairness Act,” enacted at the end of 2016, removes a barrier in creating self-settled special needs trusts for disabled individuals. The new law will also help to promote probate court efficiency by reducing the workload of probate court personnel and potentially speeding up probate hearings.

A special needs trust is an asset protection tool that is used to enable a person with physical or mental disabilities to enjoy the benefit of property held by the trust without jeopardizing his or her eligibility for governmental benefits such as Medicaid and Supplemental Security Income (SSI). The new law changes the requirements for establishing what is known as a “self-settled special needs trust.”

A self-settled special needs trust is a trust funded by the disabled individual’s own assets. We usually see this type of trust used when a disabled person, who is under 65 years of age, receives a settlement from a lawsuit or receives an inheritance, and needs to transfer those assets to a special needs trust in order to remain eligible for public benefits. These types of special needs trusts (commonly known as d(4)(A) trusts) must contain a “pay-back provision” to reimburse Medicaid and other government programs for all benefits paid on behalf of the disabled individual from assets remaining in the special needs trust upon his or her death. [Note that there are two other types of special needs trusts, a (d)(4)(C) trust (known as a pooled charitable trust); and, a regular self-settled special needs trust (which does not contain a pay-back provision).The new law does not affect these trusts.]

The new law now allows a disabled individual, who is competent to do so, to establish his or her own self-settled special needs trust. The new law eliminates the implicit presumption in the previous law that all disabled individuals are not mentally competent to establish their own trusts.

The changes brought about by this new law simplify the process for establishing a self-settled special needs trust for disabled people, streamline the legal steps required to create the trust, reduce potential costs through time-saving measures, and provide mentally competent disabled individuals increased control over their legal and financial affairs. If you need to set up a self-settled special needs trust for yourself or a loved one, please contact me at [email protected].

Michael Stankavish is a lawyer and owner of North Shore Elder Law and Estate Planning.