Law eases trust planning for disabled individuals


For individuals with disabilities, a two-word change makes a world of difference.

In December, then-President Barack Obama signed into law the 21st Century Cures Act, which includes the Special Needs Trust Fairness Act. The new statute adds a provision that allows competent individuals with disabilities to create their own special needs trusts (SNT).

Prior to this update, a law enacted in 1993 permitted a parent, grandparent, guardian or court to establish a self-settled SNT for an individual with disabilities under the age of 65 with the individual’s own assets.

The new law has updated the provision with an economy of words: “the individual” may now establish an SNT on their own.

Tim Alles, founder and managing partner of Alles Law in Grand Rapids, which focuses on elder law and estate planning, said SNTs allow individuals with disabilities to receive the benefit of trust assets without jeopardizing their government benefits.

“If somebody is receiving Supplemental Security Income (SSI) or Medicaid, they are subject to asset thresholds that disqualify them from benefits, unless a Special Needs Trust exists,” Alles said.

This means that in order to qualify for those benefits, an individual would need to “spend down” their assets to as little as $2,000. If they had received an inheritance, say of $60,000, or a court-awarded judgment from a personal injury claim from falling at a nursing home, they would have to spend all of that money before becoming eligible for government benefits, he said.

An SNT, according to the National Academy of Elder Law Attorneys (NAELA), allows those with disabilities to set aside “assets to cover additional therapy and nursing care not covered by Medicaid,” if that’s what the individual needs.

And now, individuals don’t have to wait for guardians to help or courts to grant them permission — a step Alles said will save time and court fees.

“It’s just more expensive to go to court,” he said. “Somebody now can come in and say, ‘Here’s our situation,’ and we can help them. There’s a lot less time involved for the lawyers, which generally means it’s less expensive for the client.”

Alles said the new law grants individuals with disabilities more dignity and self-sufficiency.

“This is a simple but very meaningful change to this law,” he said. “It was demeaning to those adults with a disability who still had their mental capacity, and the law assumed they didn’t have that capacity.

“It took a lot of work by the National Academy of Elder Law Attorneys and other entities. The federal government is now saying if you’re disabled, it doesn’t mean you’re incapacitated.”

Alles said the law updates what is believed to have been an “honest omission” from the Omnibus Budget Reconciliation Act of 1993 (OBRA-93), which is the law that first established the provision for self-settled SNTs created by relatives, guardians or the court.

He said one thing individuals need to be aware of before setting up a first-party SNT is states have the right to recoup money from first-party SNTs after a person’s death.

“The one caveat to these types of trusts is they are what’s often called a Medicaid payback trust,” he said. “If the beneficiary/the disabled person dies, any money left in the trust goes to pay back Medicaid.”

According to NAELA, “states have the right to receive remaining trust funds up to an amount equal to the total medical assistance paid by the state for an individual.

“This allows individuals with disabilities to use trust funds for additional care during their lifetimes but ensures that the states are first in line for repayment upon an individual’s death.”

Although he said it hasn’t had a big impact on his practice yet, Alles anticipates he will see more clients who want to take advantage of the new provision.

“We’ve had a couple of clients who we were able to utilize this with, but I’m guessing there will be more people coming forward, especially if they have money to spend down before they reach the eligibility threshold for Medicaid,” he said.

Alles said individuals should be aware of the element of time sensitivity if they come into money and want to put it into an SNT.

“(A potential) problem is, if someone gets an inheritance, they’ve got to tell the government right away, and set up this trust right away.”

Noting NAELA and other groups have been lobbying for the change for more than 20 years, Alles said he applauds their effort.

“It’s been a long time coming,” he said. “I wasn’t the one back a couple decades ago pushing for this, but I know some people at the National Academy of Elder Law Attorneys turned heads, and they got it done.”

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