Q. I hear that President Obama just signed a new law that makes it easier for disabled persons to create their own Special Needs Trust. Do you know anything about this?
A. Yes. With strong bipartisan support, just last week President Obama signed a comprehensive piece of legislation called the 21st Century Cures Act, primarily designed to find a cure for cancer, Alzheimer’s and other diseases. Included was a short provision known as the “Special Needs Trust Fairness Act”, designed to correct a decades old error in the law that presumed that all persons with disabilities under age 65 lacked the mental capacity to handle their own financial affairs.
Background: in 1993, Congress passed legislation to help ensure that individuals with disabilities could use money they had saved, or received as gifts from family, in order to provide for their own supplemental needs not covered by public benefit programs while still maintaining their eligibility for Medi-Cal and SSI. Congress did so by creating the “Special Needs Trust” (“SNT”). So long as these funds were held inside a properly established SNT, they were not counted against the individual and did not impair his or her eligibility for public benefits. In essence, the SNT allowed persons with a disability to live a better quality of life above the bare-bones minimum subsidized by public benefits.
There were, however, two “glitches”: (1) the law made an artificial distinction between those individuals under age 65 and those over age 65; only the younger group could benefit from an individually customized, stand-alone SNT. The older group was limited to joining an existing Pooled SNT, created and managed by a nonprofit association for the benefit of many individuals; and (2) the law presumed that the younger individuals lacked the capacity to create their own SNT, instead requiring that it be established by a “parent, grandparent, legal guardian, or the court”.
For the younger individuals under age 65, this requirement presented problems for individuals who did not have qualifying family members willing or able to act; alternatively, the law required court proceedings with unnecessary legal fees, delayed implementation, and associated legal obstacles.
“Glitch” Now Partially Corrected : For the under age 65 group, that ‘glitch” has now been corrected, so that younger individuals with capacity may now create their own SNT without the need to rely upon the availability of a qualifying family member or the court. Unfortunately, the law still limits those persons over age 65 to the option of joining a Pooled SNT, with its associated management fees.
President Obama signed the law on December 13, 2016, and it became effective on that date. So, if you are under age 65, you can now sign your own Special Needs Trust and plan your financial affairs like everyone else without worrying that you may jeopardize your Medi-Cal or SSI and fall further into poverty. You should, however, seek out a knowledgeable Elder Law or Special Needs attorney to assist you in creating the SNT.
Note: the new law does not change the rule that requires that any funds remaining in your SNT, upon your demise, be first used to repay the state for Medi-Cal benefits received during your lifetime. But this rule would seem a small price for the new empowerment and opportunity to live an enhanced quality of life.
References: 21st Century Cures Act [Scroll to § 5007 at page 440]; Press Release, National Academy of Elder Law Attorneys; Statement By President Obama on Passage of H.R. 34; Social Security Emergency Message in Accord with the New Law; SSI POMS