Saturday, December 17, 2016

New law allows disabled individuals to set up Section 1396p(d)(4)(a) self-settled disability trusts.

         On December 13, 2016 President Obama signed into law the 21st Century Cures Act (the “Cures Act”), which included, inter alia, Section 5007 entitled “Fairness in Medicaid Supplemental Needs Trusts”[1].  Effective immediately upon the law’s signing, an individual who is disabled, but mentally competent, has now been enabled to create a disability trust for his or her own benefit, which trust will not be treated as an available resource for Medicaid eligibility purposes, and transfers to which trust will not be penalized for Medicaid eligibility date purposes.  Prior to enactment of this new law, if a disabled individual, whether or not mentally competent, had assets or received assets (for example, by an inheritance) in excess of the Medicaid eligibility ceiling, he or she generally either had to spend down those assets or the individual’s parent, grandparent, legal guardian or a court of appropriate jurisdiction, had to set up a special needs trust for that individual’s benefit. The trust in question, which is called a Section 1396p(d)(4)(a) Trust, or a Disability Trust, is irrevocable and must contain a recoupment provision whereby the state Medicaid authority will be repaid on the individual’s death or earlier termination of the trust, for appropriate lifetime governmental benefits received by the individual.  Although the recoupment provision still applies, the amendment to Section 1396p(d)(4)(a) now allows the individual himself or herself to be able to set up the trust. Thus, and in particular, an individual who is disabled but is mentally competent, but who does not have a living parent or grandparent, and who does not have a legal guardian, will no longer need to go to court to get the court to set up such a trust for his or her benefit.  This new measure should enable the disabled person to save thousands of dollars in legal and related fees that a previously required court proceeding would have engendered, as well as saving the time a court proceeding would have taken.  It is hoped that New Jersey will recognize these trusts immediately, rather than having to await state legislative/regulatory action. 

              To be noted, Section 1396p(d)(4)(a) or Disability Trusts are created with the disabled person’s own funds.  Thus, third party trusts and planning are not affected by Section 5007 of the new legislation.  That is, a parent or other person setting up a supplemental needs trust for the benefit of the disabled individual, remains separate and distinct from the requirements as to the creation of a trust for the disabled person’s own funds.

December 17, 2016                                                                        Barry M. Benson, Esq.


(a) IN GENERAL.—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’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to trusts established on or after the date of the enactment of this Act.