Recently, bills have been introduced in both houses of Congress entitled "Special Needs Trust Fairness Act of 2013" which can make a marked impact on the availability of public benefits such as Medicaid for those who are disabled. The increased availability is accomplished by the addition of only two words, "the individual" in a section of the Social Security Act. As it stands now a Special Needs Trust if created with the disabled person’s own funds, (called Supplement Needs Trust in New York, either way referred to as "SNT") can only be created by that person’s parent, grandparent, legal guardian or by court order. This means that the disabled individual cannot establish such a trust himself or herself. The proposed new law would change this. The principal behind the change – increasing the rights of the disabled person – is important and the practical aspects are far reaching.
In order to fully understand this, let’s look at the basics. What is a SNT and why is it so vital? Here is an example: A woman suffers from a disability which makes her unable to work. She receives government benefits including Medicaid which covers her needed medical expenses. Her father passes away with a life insurance policy of $50,000 with her as a beneficiary believing that it will help provide for her needs. What he did not realize is that the $50,000 going to his daughter will make her ineligible for the Medicaid that she needs. In short, by relieving the government of the obligation for paying for his daughter’s Medicaid, he did, in essence, leave his insurance policy to the government. Clearly this is not what the father had in mind.
The authorization to create SNTs on both Federal and State levels changed this. Currently, trusts can be created to set aside assets and even excess income to "supplement but not supplant benefits." In our example, this would mean that an SNT could be created to hold the $50,000 which would otherwise have belonged to the daughter and it would not be counted as assets as far as the government is concerned when calculating eligibility for benefits. Meanwhile, the trustee of the trust can use the funds for a wide range of purposes to benefit the daughter which she would otherwise not be able to afford. Think in terms of a Medicaid recipient’s being only allowed to earn $800 per month and how little of her expenses she can afford. The SNT can make a huge impact on her life.
However, there are, of course, rules for the SNT. First, if the trust funded by assets belonging to the disabled person and there are funds left when that person dies, those funds must be used to reimburse the State for all the Medical bills it paid. If there is anything left after that it can go to beneficiaries chosen by the creator of the trust. This is the trade off for being able to use the trust fund for the benefit of the disabled individual while he or she is still getting benefits such as Medicaid.
Second, the disabled individual cannot have free, unfettered access to the trust fund. If he or she were able to use the money at will, it would be considered an available asset and may well bring about ineligibility for benefits thus defeating the purpose of the trust. Since it is a trust, there must be a trustee - the person who decides how the money can be spent. Obviously this means that the person who creates the trust must chose a Trustee who absolutely has the best interest of the disabled beneficiary at heart. The trustee must be capable of spending as much as possible while the beneficiary is alive while trying the make the funds last as long as possible. Good heart and good judgment.
The third key rule for this SNT is the limits on who can actually be the trust creator (the grantor or settler). Current law, both Federal and State, as noted above, only allows an SNT funded by the disabled person’s own assets to be established by a parent, grandparent, legal guardian or by court order. The obvious omission here is that the disabled individual cannot, alone, set up such a trust. The consequences of this short-sidedness can be dire. Someone who is disabled and has excess resources which can make his or her life a little more comfortable but his parents and grandparents are deceased, is, for no apparent reason, at a great disadvantage to someone in the same situation but who’s parent or grandparent is still alive. For no apparent rational reason, the one without the parent or grandparent would either have to hire a lawyer to petition the court for permission to create an SNT, have a legal guardian petition the court or forgo the SNT and lose benefits. Since, in general, one already will need an attorney to draft the necessary papers for the SNT, to add the additional time and expense of petitions to court foronly certain individuals is clearly unjust.
The proposed Special Needs Trust Fairness Act of 2013 if passed will remedy this inequitable result. The law is truly worthy of passage and worthy of our support. I would urge you to express that support to your Congressman and our U.S. Senators.
Sanford R. Altman is an attorney practicing elder law, estate administration and estate planning with Jacobowitz & Gubits in Walden. He can be reached at 778-2121 or firstname.lastname@example.org. This column is intended to give general legal information, not legal advice and the views expressed are not necessarily the views of the law firm.