10 January 2017

Special Needs Fairness Act

Individuals with disabilities can now create their own Special Needs Trusts.

The 21st Century Cures Act, sometimes called the Special Needs Fairness Act, amended the Social Security Act to allow a competent individual under age 65 to establish and fund their own self-settled (first party) special needs trust.  A first party special needs trust can be used to hold assets that might otherwise disqualify a person with disabilities from Medicaid, SSI, or other means-tested government benefits.

Prior to December 13, 2016, a first party special needs trust could only be established by an individual’s parent, grandparent, court appointed guardian or the Court.  Before this amendment, a mentally competent but legally disabled person had to rely on a parent, grandparent or court to create the first party special needs trust. Court orders may still be required to transfer certain types of assets to the special needs trust.  Individuals must still consult experienced special needs planning attorneys to draft an appropriate self-settled special needs trust and guide the trustee in the proper administration of the trust.

This new law empowers mentally competent individuals with disabilities to independently make their own trusts and not be forced to rely on others to advocate for their needs.  The National Academy of Elder Law Attorneys, the Special Needs Alliance and other advocates for people with disabilities were instrumental in getting Congress to pass this legislation.


Under Federal law, an individual with disabilities may qualify for means-tested government benefits if, in part, he or she owns no more than $2,000 of countable assets.  If the individual’s countable assets exceed $2,000, the individual could lose essential governmental benefits like Supplemental Security Income (SSI), Medicaid, food assistance, personal care attendants, self-determination benefits and housing assistance like HUD or Section 8.

In 1993, Congress enacted a law, 42 U.S.C. Section 1396p d(4)(A), allowing a parent, grandparent, guardian or court to establish a special needs trust for an individual with disabilities, who is under age 65, with the individual’s own assets. The new 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.”  This allows competent individuals with disabilities to independently establish a self-settled special needs trust.

These “self-settled” special needs trusts are important planning tools for many individuals with disabilities who, while receiving government benefits, may, for example, inherit assets, receive a personal injury lawsuit settlement or back payments of Retirement, Survivors, and Disability Insurance (RSDI) benefits.  Without the ability to create a self-settled special needs trust to hold the excess funds, those individuals would lose their much-needed government benefits which pay for basic living and medical expenses.  Assets contained in a properly drafted self-settled special needs trust don’t disqualify the individual with disabilities from continuing to receive those government benefits and may be used to improve the individual’s quality of life.  As a tradeoff for the ability to create self-settled trusts, however, the State must be reimbursed for the Medicaid dollars spent on the care it provided to the individual when the individual dies or the self-settled special needs trust is terminated, whichever first occurs.  First party special needs trusts are highly regulated.  Special rules apply to the establishment, funding, administration and reporting of these trusts.

Contact a member of our Disability and Special Needs Planning practice if you have questions about Special Needs Trusts or if you or your loved one might benefit from a first party special needs trust.