By: Kristen DeNoia
By way of a seemingly simple drafting error, Congress has written a significant inequity into law. The current language of the Omnibus Reconciliation Act of 1993 (“OBRA”) assumes that an individual with disabilities lacks the capacity to enter into a contract. This law allows individuals with disabilities, under 65 years old, to put their assets into a supplemental needs trust (SNT) and not have these trusts counted as a resource in determining Medicaid and Supplemental Security Income (SSI) eligibility. However, the wording of the law does not allow individuals with disabilities to establish certain SNTs on their own; rather, they must spend significant legal fees in petitioning the Court to establish the trusts.
An SNT allows an individual with a pool of money to pay for expenses of daily living that Medicaid does not cover, such as: toiletries, haircuts, clothing, furniture, computers, cell phones, entertainment expenses, travel expenses, education expenses, and hobbies. Without an SNT in place, many people would have to deplete their savings before qualifying for benefits since Medicaid and SSI eligibility require an individual to meet strict financial criteria.
Depending on the circumstances, an SNT may be created under section (d)(4)(A) or section (d)(4)(C) of the law. A (d)(4)(A) trust appoints a friend, family member, trusted professional, or corporation as a trustee to hold, manage, and make distributions. Under a (d)(4)(C) trust, an individual’s assets are maintained and administered by a nonprofit organization. The nonprofit pools the assets of the trusts it administers for management and investment purposes. The law specifically provides who may establish these SNTs. Both trusts can be established by a parent, grandparent, legal guardian, or court, but only a (d)(4)(C) trust can be established by the individual with disabilities, himself.
Many individuals with disabilities may not have living parents or grandparents and do not lack mental capacity, requiring the appointment of a legal guardian. Because these people are not allowed to establish their own SNTs, they must apply to the court through a time consuming and expensive process. By way of example, a forty year old blind client receiving SSI was in a car accident and wished to put the proceeds of the resulting personal injury lawsuit in an SNT. However, because she did not have a living parent or grandparent, she had to spend nearly $5,000 in applying to the court for establishment of the trust.
The National Academy of Elder Law Attorneys, Inc. (NAELA) has proposed a bill, the Special Needs Trust Fairness Act of 2013, which will specifically allow a (d)(4)(A) trust to be established by an individual with disabilities. The bill was introduced to the House of Representatives in May of 2013 and is currently in committee. It has also been made a part of the Senate version of the Sustainable Growth Rate Repeal and Medicare Beneficiary Access Improvement Act of 2013 which was reported on January 16, 2014 and is pending debate.