On Dec. 13, 2016, President Barack Obama signed the 21st Century Cures Act (Act) allowing individuals to create their own self-settled special or supplemental needs trust (SNT), without having to go to court. [1] Prior to enactment of this new law, disabled individuals who did not have a living parent or grandparent (or did not need a guardian) could not independently establish a self-settled SNT without going to court. As of the effective date of the Act, such disabled individuals will no longer need to go through potentially costly and time consuming court proceedings to establish a self-settled SNT.

A SNT is a type of trust created for the benefit of a disabled individual who either is receiving or may in the future receive public assistance benefits (i.e., Supplemental Security Income (SSI) and Medicaid). The goal of the SNT is to provide support to the SNT’s beneficiary without risking the beneficiary’s eligibility for public benefits.[2] A SNT may be incorporated into an estate plan to ensure the financial security and lifestyle of an individual with special needs.

A well-drafted SNT provides for “supplemental” support to the beneficiary. In other words, the distributions from the SNT to the beneficiary should be limited to payment of expenses other than food and shelter, medications, medical services, assistive technology, transportation, education, and certain housing items as those items are generally provided by public assistance already. If the trust agreement is properly drafted, the funds held in the SNT will not be counted as resources for purposes of determining eligibility for SSI and Medicaid benefits.[3]

There are two types of SNTs: third party SNT and the self-settled SNT. A third-party SNT is a trust in which a third party, such as a family member or friend, creates and funds the trust for a disabled individual. A self-settled SNT is a trust in which a disabled individual funds the trust with his or her own assets. For either type of SNT, trustee selection is important since the trustee will have sole and absolute discretion over the SNT assets and must understand the interplay between the beneficiary’s eligibility for public benefits and the provisions of the SNT. For this reason, professional trustees are often recommended.

Before creating any type of SNT, it is important to seek the advice of an attorney who is experienced in estate planning to carefully review several SNT planning considerations including, but not limited to: who will act as trustee; the preparation of a letter of intent to assist the trustee of the SNT; and funding options for the SNT.

*Admitted to the practice of law in Florida.

[1] H.R. 31 – 114th Congress (2015-2016).  The Act amends Section 1917(d)(4)(A) of the Social Security Act (42 U.S.C. 1396p(d)(4)(A)) by inserting “the individual,” after “for the benefit of such individual by.”

[2] In order to be eligible for SSI and Medicaid benefits, an individual cannot have more than $2,000 in assets that can be converted to cash. To understand what resources may be included for purposes of determining public benefits eligibility see https://www.ssa.gov/ssi/text-resources-ussi.htm  and 20 CFR § 416.1201(a)(1).

[3] State Medicaid Programs and Social Security Administration’s Program Operations Manual Systems have specific guidelines or requirements for SNTs.  For more information visit https://secure.ssa.gov/poms.nsf/lnx/0501120000.