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The Special Needs Trust Fairness Act
By Kevin Urbatsch, Esq.
The Special Needs Trust Fairness Act (a part of the 21st Century Cures Act) was passed into law on December 13, 2016 and became immediately effective on that day. This law allows people with disabilities to create their own self-settled first-party special needs trusts without having to rely on others. This law corrects a decades-old problem in federal law that presumes that all persons with disabilities lack the mental capacity to handle their own affairs.
Under prior law as set forth in 42 U.S.C. §1396p(d)(4)(A), if a person with special needs wanted to fund his or her own assets into an individual first-party special needs trust to preserve both the assets and maintain access to government benefits, that person had to have a parent, grandparent, legal guardian or a court establish the trust. The underlying bias in that law was that persons with a disability were incapable of establishing their own trust. Many people considered the failure to include the “individual” as one of the persons allowed to establish a trust as an oversight or a mistake, but it was the law.
For adults with capacity, it was demeaning to be told they had to ask a parent or grandparent to help them establish a trust. For those people without a parent or grandparent, attorneys had to find creative ways to obtain court jurisdiction to establish a qualifying trust. Once an attorney was in court, sometimes the court used the opportunity to place the trust under ongoing court supervision. This meant that instead of using the person with a disability’s funds to pay for their own special needs, it was used to pay for attorney’s fees, bond, filing fees, and expensive court accountings, even though the beneficiary had total capacity to manage his or her own affairs. People with disabilities who had capacity (but no parent or grandparent) were subjected to these unnecessary costs and fees while people with a parent and grandparent did not. It was fundamentally unfair and difficult to explain. This change in the law does not affect people with disabilities who do not have capacity to set up a trust. For those people, it is still required that their special needs trust be established through Probate Code §§3600-3613 (for litigation proceeds) or through Probate Code §2580 (for all other assets through a conservatorship).
Adults who have capacity can establish their own (d)(4)(A) special needs trust. This will avoid the need of going to court. It will be less expensive and easier to establish. If a person is receiving Supplemental Security Income (SSI), then the person can establish his or her own trust right away.
If the person is on Medi-Cal, it may require some explanation to DHCS as its policy manuals still do not list individuals. It is expected that both the SSA and DHCS will issue directives explaining the new law to personnel, but if relying on this law, it is recommended that you provide an explanation as to why a person can now establish his or her own (d)(4)(A) SNT.
(Kevin Urbatsch is an attorney with the Urbatsch Law Firm in Pleasant Hill, CA)
Page Last Modified: April 3, 2017