Planning for Life

Support the Special Needs Trust Fairness Act

Posted by Harry S. Margolis on August 19, 2013

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By Harry S. Margolis

Ever since Congress authorized the creation of special needs trusts in 1993, there has been an anomaly in the law. Twenty years later, an effort has been mounted to correct this glitch.

MassHealth (Medicaid) and Supplemental Security Income (SSI) laws permit applicants for benefits to shelter assets in two kinds of special needs trusts authorized under 42 U.S.C. Sec. 1396p(d)(4)(A) and 42 U.S.C. Sec. 1396p(d)(4)(C). The first exception permits the creation of individual trusts and the second the creation of pooled trusts operated by nonprofit organizations.

For both trusts, part of the deal that permits a beneficiary to shelter assets and still receive MassHealth and SSI requires that if funds remain in the trust after the death of the beneficiary, they must be used to reimburse the state for MassHealth benefits paid out during the beneficiary's life. Only if funds remain after the state has been reimbursed may they be paid to the beneficiary's family. In addition, the pooled disability trusts may retain funds to help cover their administrative costs.

There are three main differences between the individual and pooled trusts. The first has to do with choice of trustee, whether the trust is managed by a non-profit trustee or the trustee chosen by the client. Second, the individual trust must be set up and funded before the beneficiary reaches age 65 while the pooled trust may be created at any age (though there are some restrictions on funding after age 65 in some states -- not Massachusetts).

The third distinction has to do with who may create the the trust. Under the enabling statute, the individual "(d)(4)(A)" trust may be created by the beneficiary's parent, grandparent or guardian, or by a court. A pooled "(d)(4)(C)" trust may be created by any of these people or entities, and also by the beneficiary herself. The fact that a person with a disability cannot create an individual special needs trust himself has created real difficulties for potential beneficiaries who do not have a parent or grandparent available to sign the document. In many instances, guardians and courts are unavailable for this purpose or, even imagesif they are available, the process of getting court approval costs money and takes time, time during which the beneficiary may not have access to health care or may be incurring huge bills he can't pay.

It's never been clear why Congress created this anomaly except that it was thinking that only disabled children or severely injured individuals would take advantage of this safe harbor. That has not been the case, and now Rep. Glenn ("G.T.") Thompson (R-PA) has introduced H.R. 2123 to permit people with disabilities to create their own (d)(4)(A) trusts. It's a very simple bill that adds just two words to the statute, but will prevent a lot of future difficulties for disabled individuals all across the country.

The Special Needs Trust Fairness Act of 2013 has been endorsed by the National Academy of Elder Law Attorneys and the Academy of Special Needs Planners. We urge you to call or write your member of congress to urge that he or she supports the bill as well.

For more information about the bill, click here.

Learn more about Special Needs Trusts & Planning »

Topics: Retirement Planning, special needs planning

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