Self-Funded Special Needs Trusts (SF-SNT) have become important planning tools for many individuals with disabilities who receive certain government benefits and later receive funds from a personal injury lawsuit, Social Security back payments, an inheritance, or otherwise, which exceed the allowable resource limit. The law has been amended so individuals with disabilities can create their own SF-SNT.
The history behind the SF-SNT
In 1993, Former President Clinton signed the Omnibus Budget Reconciliation Act of 1993 (“OBRA 93”) into law, which made substantial changes to Medicaid eligibility rules. One of those substantial changes included the ability of an individual with disabilities (“individual”) under the age of sixty-five (65) to have a Self-Funded Special Needs Trust (SF-SNT) created on his behalf, in which he could place his resources thus allowing him to qualify for Medicaid and other resources, such as Supplemental Security Income. Under OBRA 93, a SF-SNT could only be created by the court or an individual’s parent, grandparent, or court-appointed guardian. As the law was written, it prevented a competent individual from creating a SF-SNT on his own behalf, and in many instances, required him to seek court approval to create it.
OBRA 93 provided that resources contained in a properly drafted SF-SNT wouldn’t count toward the resource limit, which is as low as $2,000.00 for Medicaid and Supplemental Security Income, and thus would allow these individuals to continue receiving government benefits. The resources held in the SF-SNT could then be used to improve the individual’s quality of life without sacrificing his benefits. However, as a compromise, on the death of the individual or earlier termination of the SF-SNT, Medicaid must be repaid for the cost of care provided to the individual. Without the ability to create a SF-SNT, these individuals would lose their important and much-needed government benefits.
Law changes allowing individuals to create their own SF-SNT
One critical flaw of OBRA 93 was that it did not provide any method for individuals with disabilities that had capacity to establish a SF-SNT for themselves. Yet, OBRA 93 created Pooled Special Needs Trusts, which basically serve the same function as SF-SNTs with some differences and which could be established by an individual with disabilities. Many believed OBRA 93 was discriminatory because it prevented capable individuals from creating SF-SNTs.
Over 23 years after the enactment of OBRA 93, Former President Obama signed the 21st Century Cures Act on December 13, 2016, which includes Section 5007, titled “Fairness in Medicaid Supplemental Needs Trusts”. Section 5007 amends the existing SF-SNT statute in OBRA 93 to include the words “the individual” now allowing an individual with disabilities to create his own SF-SNT.
Contact the special needs planning attorneys at Weaver, Bennett, and Bland, P.A., if you or someone you know would like to discuss a SF-SNT to protect your resources while remaining eligible for public benefits.
Crystal L. Welton is an estate planning, estate administration, elder law, and special needs planning attorney at Weaver, Bennett & Bland, P.A. Contact Crystal at Weaver, Bennett & Bland, P.A. at (704) 844-1400. The information contained in this article is general in nature and not to be taken as legal advice, nor to establish an attorney-client relationship between the reader and Crystal L. Welton or the law firm of Weaver, Bennett & Bland, P.A.
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