Special Needs Trust Update

Special Needs Trust Update: The Importance of “the Individual.”

On December 13, 2016, President Obama signed into law the Special Needs Trust Fairness Act, which allows a mentally competent disabled individual to establish a special needs trust for him or herself. The Act’s amendment to existing law will dramatically reduce the costs and delay of establishing a special needs trust in Massachusetts, and should eliminate some lingering uncertainty as to whether a special needs trust was appropriately established.

What is a Special Needs Trust?

A special needs trust preserves an individual’s eligibility for certain means-tested government benefits programs, such as SSI or housing programs, when the special needs individual receives assets that would otherwise disqualify him or her, like an inheritance or personal injury settlement. The Trustee of the special needs trust is authorized to spend trust assets on those items that are not covered by the disabled beneficiary’s benefits programs, thereby improving the beneficiary’s quality of life. In other words, the Trustee is authorized to supplement, but not supplant, the beneficiary’s government benefits. Preservation of eligibility for state assistance can be critical for a disabled individual, particularly where his or her housing, employment, medical care, and social life has been dependent on eligibility for various programs for decades.

A Much Needed Cure.

In the past, to qualify as a “self-settled” special needs trust – that is, a special needs trust established by and funded with the assets of the disabled individual, as opposed to a special needs trust created and funded by a third party – federal law provided that the trust must have been established by “a parent, grandparent, legal guardian of the individual, or a court…” In other words, the law assumed that a disabled individual was not competent to establish his or her own trust, instead requiring an individual in a fiduciary or supervisory role to create the trust on his or her behalf.

More troubling, if the individual no longer had a living parent or grandparent, establishment of a special needs trust required an expensive and lengthy proceeding in the Probate and Family Court. While the federal statute authorized a legal guardian to establish a special needs trust, the Massachusetts Uniform Probate Code requires the appointment of a conservator to establish a trust for a protected person, meaning that the only procedure for establishing a qualifying special needs trust with certainty was to have a court (typically, the Probate Court) establish the special needs trust. Consequently, disabled individuals were spending large sums to protect sometimes modest inheritances or settlement proceeds.

The Act has rectified this gap by inserting “the individual” into the list of authorized settlors (those who can create a special needs trust). In doing so, mentally competent disabled individuals across Massachusetts and the nation will be spared the former costs, delays and uncertainties of establishing a special needs trust.

Do you have a question about establishing or managing a Massachusetts Special Needs Trust? Call our office for a free consultation today.