A Special Needs Trust (SNT), also known as a Supplemental Needs Trust, is a trust that holds funds in a way that preserves the eligibility of an individual for public benefits, such as Medicaid and Supplemental Security Income (SSI). One important type of SNT is a first party special needs trust, which is funded with the beneficiary’s own assets.
Who Can Create a First-Party Special Needs Trust?
Before December 13, 2016, individuals with special needs could not create special needs trusts for their own benefit.
That’s because the law as originally written authorized only a parent, grandparent, guardian, or court to establish a first party special needs trust. As a result, even individuals with disabilities who had legal capacity could not create one for themselves.
What Changed in 2016?
That all changed on December 13, 2016. The Special Needs Trust Fairness Act, signed by President Obama on that day as part of the 21st Century Cures Act, empowers mentally competent individuals with disabilities to create special needs trusts for their own benefit.
The change was significant because it gives people with disabilities more autonomy over their financial and legal affairs. It also recognized that having a disability doesn’t automatically mean a person lacks legal capacity.
Why Preserving Eligibility Matters
Special needs trusts are important because Medicaid and SSI are means-tested benefits. To qualify for those benefits, a recipient can’t have more than $2,000 in countable assets. Medicaid is especially valuable because it may cover medical care, therapies, medications, and long-term care that may otherwise be unaffordable.
One way to preserve eligibility for Medicaid and SSI to create a first-party special needs trust and transfer the beneficiary’s own assets into it. Unlike a third-party special needs trust, a first-party special needs trust must include payback provision. In other words after the beneficiary dies, Medicaid is entitled to remimbursement for funds expended on the beneficiary’s care.
If a person with disabilities who qualifies for Medicaid receives money outright, such as through a settlement, or inheritance, those assets can push the person over the asset limit and may cause them to lose their benefits. A first party special needs trust helps avoid that result by holding assets in a manner that does not disqualify them.
Special needs planning is technical, and can vary from state to state. It’s important to seek guidance from an attorney licensed in your state familiar with special needs trusts.
