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Important Change to Special Needs Trust Law

                 In 1993 Congress enacted a law commonly referred to as OBRA 1993.  The law contained major changes to the Medicaid laws.  Included in the law was a provision permitting the creation of a special needs trust for disabled individuals under the age of 65, into which could be placed the disabled individuals own assets so he/she could preserve Medicaid eligibility.   This type of trust is known as a “d(4)(A) trust, a reference to the section of the law which created it.  It is also referred to as a 1st party special needs trust because the assets place into the trust are the disabled individuals own assets.

                These trusts have particular importance to disabled individuals who have received inheritances from family members or others that were not placed into what are known as 3rd party special needs trusts.  They are also helpful to disabled individuals who have received personal injury settlements.  In both instances, the SNT allows them to use the funds in the trust to improve their quality of life without sacrificing government assistance which pays for basic living , medical and/or long term care expenses.

                 A quirk in the law, however, existed for 23 years.  OBRA 1993 provides that a parent, grandparent , guardian or court can set up a 1st party SNT but it does not specifically provide that the disabled individual him/herself can set up the trust.  This omission created an unnecessary cost for many who wanted to take advantage of this “safe harbor” for their assets.

                We have set up these trusts for clients for many years.  The problem, however, we encounter exists when the disabled individual does not have a parent or grandparent alive and is not incapacitated so does not have or need a guardian.  That has left only one option, petitioning a New Jersey court to establish the trust.  This can result in added legal fees, especially if the judge requires a hearing.

                That all changed this week with the Fairness in Medicaid Supplemental Needs Trusts Act which is included in the 21st Century Cures Act that President Obama signed into law on December 13, 2016.  The law inserts two words – “the individual” – into the law.  Now the disabled individual can be the grantor and establish a 1st party SNT without having to go to court to do so.

                There will still be some disabled individuals who won’t be able to set up their own SNT.  An individual with mental capacity issues who needs a guardian to make decisions for them won’t be able to establish their own trust, but the change solves the problem for individuals whose disability is of a physical nature and who have no need for a guardian.  It’s been a long time coming and the omission never made any sense, but finally an unfairness in the law has been rectified.

                One thing remains unchanged.  The laws concerning SNTs are complicated.  It is still important to consult with an elder and disability planning attorney knowledgeable and experienced in setting up SNTs.  There is too much at stake to take a “do it yourself” approach.