Living Columns & Blogs

Special Needs Trust Fairness Act would allow people with disabilities to create their own trusts

Amos Goodall
Amos Goodall

Several years ago, U.S. Rep. Glenn Thompson, R-Howard Township, introduced the Special Needs Trust Fairness Act. A companion bill was introduced in the Senate, and it unanimously passed the Senate last September.

It remains on the docket of a House committee, although a number of members of both parties from across the United States have signed on as co-sponsors — although, curiously, not U.S. Rep. Bill Shuster, R-Hollidaysburg.

Medicaid is a program partly supported with federal funds but administered by the states. In Pennsylvania, medical assistance is made available to people with disabilities who meet income and asset guidelines.

As a part of the legislation governing this program, Congress has provided that under limited circumstances, some of the assets of Medicaid applicants can be placed in very controlled trusts (“Special Needs Trusts”). These trusts are either created by charities (“pooled trusts”) or there are provisions requiring any funds remaining unused when the trust ends to be used first to reimburse the state for its Medicaid payments (“payback trusts”). They are used to supplement the very limited benefits given by Medicaid and other needs-based programs.

Unfortunately, due — many observers believe — to a typographical error when the law was created, there is only a limited group of authorized trust creators for payback trusts. The law limits these to the person’s parent, grandparent, legal guardian or a court. Significantly omitted from this list is the person with a disability.

While certain catastrophic disabilities might conceivably affect a person’s capacity to create a trust, most people with disabilities can act on their own behalf, and it is demeaning not to be allowed to create their own trusts. Moreover, often adults with disabilities may not have living parents or grandparents, not need legal guardians and cannot easily access courts.

This restriction also creates a situation ripe for misunderstanding and abuse. In a case in South Dakota, a beneficiary with traumatic brain injury actually lost the benefit of an insurance settlement because her parents had made a mistake in creating the trust to hold that settlement. Even though the parents created the trust and a court approved it, the Social Security Administration took the position that the parents were acting as their daughter’s agents in so acting — a procedure not allowed under the statute. Thus, 20-year-old Stephany Draper will have to live the rest of her life without the benefit of the funds which were given to help her, because her parents and the trial court made a mistake.

The Special Needs Trust Fairness Act as presented by Thompson corrects this typographical error and allows a person with disabilities who has the capacity to act to create a trust. Congress recognized that such a person should be able to create funds to supplement benefits when it adopted the ABLE Act, proposed by our Sen. Bob Casey, D-Pa.

This is actually a very short law. The entire operative language is “Section 1917(d)(4)(A) of the Social Security Act (42 U.S.C. 1396p(d)(4)(A)) is amended by inserting “the individual,” after “for the benefit of such individual by.” Thus, the amended statute would read “ ... established for the benefit of such individual by the individual, a parent, grandparent, legal guardian of the individual ...,” with the proposed language bolded. More material is available on our website — www.centrelaw.com — under the link “Fairness Act Materials.”

Although there are many controversial measures stalled in Congress, this is one proposed law that can easily solve a problem and remove a “badge” that unnecessarily discriminates against people with disabilities by allowing them to take control over this aspect of their own lives.

Amos Goodall is a certified elder law attorney practicing in State College with Steinbacher, Stahl, Goodall & Yurchak. He is also a fellow of the American College of Trust and Estate Counsel.

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