Special Needs Trust Fairness Act

Special Needs Trust Fairness Act

As a follow up to last week’s column on the 21st Century Cures Act it is only fair to fill you in on additional provisions of the soon to be new law that explicitly concern  Special Needs Trusts, a portion known as the Special Needs Trust Fairness Act, and also relief from some IRS penalties.

If you ever heard the expression “grab bag,” you know what it is.  It is a bag full of goodies, some of which you might really enjoy or even need and others not as much.

If you understand grab bags, you understand what happens with legislation today.  Multiple provisions that may or may not relate to each other are combined into one law and legislators decide whether to accept or reject.  This is why when office holders run for reelection they can be charged both with supporting and opposing laws that may or may not fit their primary agendas.

Last week I wrote about the 21st Century Cures Act that passed the U.S. House of Representatives and the Senate and is on its way to President Obama for signature.  Among other things it addressed funding for cancer, mental health and Alzheimers research and also loosened requirements for approving new drugs.

An additional section of the Act that has been supported by elder law and special needs attorneys and the disabled community called the “Special Needs Trust Fairness Act” is contained in the same legislation.

Here is the background.

Special Needs Trusts also known as Supplemental Needs Trust are means by which disabled persons might have a fund available for their benefit and also obtain government benefits, notably Medicaid.  There are restrictions.  For instance, the trust funds cannot be used for basic needs such as food and shelter and they cannot provide money directly to the disabled person.

Special Needs Trusts can include funds either set up by Will or by separate standalone trusts by other persons such as trusts established by parents for disabled children.  However, one type known as a (d)(4)(A) or a Payback trust can be set up with the disabled person’s own funds.  It receives its title from federal law, 42 U.S. Code Section 1396(d)(4)(A).

Until now, a (d)(4)(A) trust, although established with the disabled person’s own funds, could only be established by a parent, grandparent, guardian or the Court.  The disabled person could not establish his or her own (d)(4)(A) trust.  One explanation of this arrangement could be it was assumed the disabled person was so incapacitated he or she could not set up such a trust on his own.  Also, action by a parent or grandparent might indicate the thought that the trust was established for the benefit of a minor child.  Adding a requirement of going to Court by the disabled person herself in cases where a parent or grandparent was not available and where there was no guardian made it more difficult and expensive to set up this type of trust by the disabled person.

The Special Needs Trust Fairness Act changed this.  Under the new law competent individuals who have disabilities can set up their own trust using their own funds without going to Court.  This continues and expands a movement to enable disabled persons to set aside additional funds for their survival.  The law was preceded by another law along these lines, the ABLE act.  ABLE allows accounts for the benefit of a disabled person who became disabled earlier in life and is restricted as to amounts that can be contributed.

Finally, another portion of the 21st Century Cures Act rescinded an IRS regulation that has been a matter of serious concern by some small employers.  Previously IRS passed a penalty of $100 per day against employers who directly paid their employee’s health insurance premiums to a health insurance company or who reimbursed the sum the employee paid for health insurance in the Marketplace.  Although not part of the Affordable Care Act, the provision was obviously intended to support employers moving into SHOP, the company version of the Healthcare Marketplace.  The regulation had the unfortunate effect of penalizing employers who paid for employees’ health insurance even when the employer was not required to do so.  That is now gone.  This was one provision related to the Affordable Care Act that did need to go and now that is done.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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