Special needs trusts are powerful tools for individuals with disabilities to pay for the quality of life they desire.  However, there is a flaw in current special needs trust law which prevents people with special needs from establishing their own special needs trusts, often referred to as “d4A” trusts.  Only a parent, grandparent, conservator, or court can establish a special needs trust on behalf of the person with disability; the person who has a disability is not allowed to create his or her own trust, even if he or she is fully capable of doing so.  This error in how the law was written creates unnecessary, and sometimes expensive, legal problems.  Furthermore, it is denigrating, based on (and perpetuating) the premise that all individuals with disabilities lack mental capacity to establish their own trusts.

The Special Needs Trust Fairness Act, H.R. 670/S. 349, is a proposed federal bill designed to correct this error.  It follows the example of other special needs financial planning options, such as the ABLE Act and pooled trusts, which allow people with disabilities to establish trust accounts for themselves.  This bill needs support from congressional representatives to make it through the House of Representatives and into law.  Elder Law of East Tennessee is working with other elder law firms across the country to support efforts to pass this important legislation.  We encourage special needs individuals, their loved ones, and the professionals who serve them to reach out to their representatives to help correct the error in current special needs trust law.

What is a d4A special needs trust?

A d4A special needs trust is a type of trust which allows an individual under age 65 to set aside funds for uses other than medical needs while still allowing them to qualify for public benefits that provide care, such as Medicaid.  In order to receive coverage under public benefits programs, applicants must meet strict financial qualifications.  This sometimes necessitates a spend-down of their assets to less than $2,000.  However, public benefits programs cover only the most basic aspects of care, and with such severely limited assets, a person with disability cannot pay out of pocket for additional care needs or quality of life expenditures which benefits don’t cover.  In this situation, a d4A special needs trust may be the solution.  It is a trust in which assets of the individual under age 65 are set aside for future use, and it does not disqualify the individual from receiving benefits.

It is important to note that special needs trusts are not a means of circumventing laws which prevent individuals from taking unfair advantage of public benefits programs.  These are considered sole benefit trusts and therefore cannot benefit other people. For example, an individual with special needs cannot use a d4A special needs trust to set aside a large inheritance for his or her descendants.  The d4A special needs trust includes a “payback provision.”  This means that when the trust beneficiary (the individual with disability) dies, the State is entitled to reclaim reimbursement from the trust equal to the amount which Medicaid or another benefits program paid for that person’s care during his or her lifetime.  Generally there is little likelihood there will be money left in the trust following the beneficiary’s death and reclaiming of funds by the State.

Where do funds for a d4A special needs trust come from?

The funds which go into a special needs trust account may come from a variety of sources.  The individual with disability might inherit money from a loved one who did no planning.  If the d4A trust is not utilized to hold the funds for the individual and the individual receives the funds outright, the individual with the disability will lose benefits.  Settlement payments from a law suit could also be funneled into the trust rather than going to the individual outright.  D4A Special needs trusts are a good way of handling lump sums of money received by the person with a disability which could potentially cause the person to lose the benefits he or she already receives.  The trust can also be funded with the special needs individual’s own savings.   As the law currently stands, that individual still requires a third party to actually establish the trust.

Why is it a problem that individuals can’t create their own special needs trusts?

So what if a special needs individual can’t set up his or her own d4A trust?  He or she can just get someone else to set it up on his or her behalf, right?

If the person with disability is part of a supportive family with the means to set up a special needs trust, then yes, this is the solution at present.  But what about individuals who have no living parent or grandparent?  What if the family dynamics are difficult, making it impossible to work out this arrangement?  In these situations, an individual with disability must petition the court to establish a special needs trust on his or her behalf.  This process can be both time-consuming and costly, depleting funds which could otherwise be set aside to pay for care needs and delaying access to care and benefits.  It can also be embarrassing for the person with disability because he or she must disclose private medical information to the court, which can feel like a violation of privacy.

The real question is:  why should special needs individuals with full mental capacity continue to be treated as if they are not capable of making their own financial and legal decisions? Why should they be denied the right to establish their own trusts because of an oversight in the law?

What does the Special Needs Trust Fairness Act do?

The Special Needs Trust Fairness Act doesn’t do anything particularly extraordinary or drastic; it merely corrects a small but significant drafting error in the Omnibus Budget Reconciliation Act of 1993 (OBRA-93).  It adds “an individual” to the list of persons or entities allowed to establish a d4A special needs trust on behalf of that individual.  This two-word omission in the current law has had enormous consequences for special needs individuals for over two decades.   Correcting the problem in this law would bring it in line with other laws related to financial planning for people with disabilities (such as the aforementioned ABLE Act).  It would not expand the target population of the law or change the eligibility requirements for those who might benefit from a d4A special needs trust.  It would simply make it easier (and less costly) for those who already meet the requirements to actually exercise the rights they already possess.

What is the status of the Special Needs Trust Fairness Act?

The Special Needs Trust Fairness Act passed the Senate in September 2015 by unanimous consent.  In the House of Representatives, it is still stuck in committee.  The House Energy and Commerce Subcommittee on Health held a hearing in September 2015, but it has not yet come up for vote.  More representatives need to hear from their constituents who support this reasonable change to the law.

What can I do to support the Special Needs Trust Fairness Act?

There are several steps you can take to help support the Special Needs Trust Fairness Act:

  1. Contact your representative.  (If you don’t know who that is, find out here.)  You can send them the short letter we have written (click here to download), or copy the text into an e-mail asking your representative to support this bill.
  2. If you are a professional who serves adults with special needs, ask for the opportunity to speak to your representative (or his or her staffer who handles health issues) about the importance of the Special Needs Trust Fairness Act.
  3. Spread the word.  Forward this newsletter to others who might be willing to support the bill and contact their representatives.  Share the information on Facebook or other social media sites.  Talk it up with your friends and family members.  If you work with individuals with special needs and/or their families, share this information with them so that they can speak up for themselves and their loved ones.

It is high time for individuals with special needs to have easy access to the rights they have already been granted.  Please join us in the nationwide effort to correct a small mistake which has a big impact on thousands of Americans every year.