What are the statutory requirements for a Self-Settled Special Needs Trust?

A Self-Settled Special Needs Trust is a vehicle authorized by Congress under OBRA ’93. By utilizing this type of trust, a beneficiary can maintain eligibility for important public benefits, such as SSI and Medicaid, and enjoy the benefit of the personal injury settlement. In authorizing Self-Settled Special Needs Trusts, Congress imposed six conditions:

• Assets of Individual. The trust must be funded with assets of the individual. The individual is the beneficiary of the trust. The personal injury settlement belongs to the individual and satisfies this requirement.

• Under 65 Years of Age. The beneficiary must be under age 65. This means that at the time the trust is established and funded, the individual must be under age 65. Even if the trust is established prior to the beneficiary’s 65th birthday, assets cannot be transferred to the trust after age 65. The Social Security Administration has stated in its Program Operations Manual System (POMS) that, if a structured settlement is in place prior to the beneficiary attaining age 65, payments can continue to be made from the structure to the trust after the beneficiary reaches age 65.

• Disabled. The beneficiary of the trust must be disabled as defined by the Social Security Act. The definition of disability is contained in the Social Security Act. There must be a Determination of Disability by the Social Security Administration (SSA). Persons receiving Medicaid through CHIP or similar programs based on income are usually not disabled and are ineligible to establish a Self-Settled Special Needs Trust.

• For the Benefit of Such Individual. Under the statute, the trust must be established “for the benefit of such individual.” The Social Security Administration POMS has clarified that this language means for the sole benefit of this individual. This means that distributions from the trust can only be made to or for the benefit of the beneficiary. This often creates difficulty in the administration of the trust, because other family members want to benefit from trust assets.

• Established By. The trust can only be established by a parent, grandparent, guardian or a court. A Self-Settled Special Needs Trust cannot be established by the individual beneficiary. If the beneficiary is a minor or incapacitated person, the court will have to approve the settlement, so the usual practice is to have the court establish the trust in those situations. If the beneficiary is a competent adult and no court approval of the settlement is required, it is usually easier to have the trust established by a parent or grandparent. While the trust can be established by a guardian, in most states a guardian is not authorized to establish a trust without court approval, so in these cases the firm simply has the court establish the trust.

• Payback. The Special Needs Trust must contain a payback provisions providing that the State Medicaid Agency must be repaid for all amounts of medical assistance paid to the beneficiary. Unfortunately, the POMS was recently amended to clarify that this language means the payback must include all medical assistance since birth, whether or not related to the injury.

To learn more, visit the Begley Law Group website at www.begleylawgroup.com.