The New Special Needs Trust Fairness Act

The Special Needs Trust Fairness Act, federal legislation that allows people with disabilities to create their own special needs trusts instead of having to rely on others, is now law.  The measure was included in the 21st Century Cures Act, a $6.3 billion package of health-related initiatives signed by President Obama on December 13, 2016. 

The National Academy of Elder Law Attorneys (NAELA)  press release announcing the Fairness Act’s clearing its final legislative hurdle, explains that the measure “corrects a patently false and degrading error in the law that presumed all individuals with disabilities lacked the capacity to handle their own affairs.”  The legislation, which Rep. Glenn Thompson (R-Pa.) introduced in 2013, will finally allow beneficiaries with capacity to create and fund their own special needs trusts with the same treatment and protections available for trusts created by others on behalf of the beneficiaries. 

In addition to Rep. Thompson, NAELA applauded Frank Pallone (D-N.J.) along with Sens. Chuck Grassley (R-Ia.) and Bill Nelson (D-Fl.) “for their bipartisan dedication to ensuring this common sense fix became law.”

The Fairness Act will apply to trusts established on or after the date that the Cures Act was enacted.  

The Social Security Administration has published an emergency memorandum incorporating the change into the Program Operations Manual System (POMS) ( with thanks to Attorney Donald D. Vanarelli, whose blog post can be found here).

The SNT Fairness Act can be found in Title V, Section 5007 (page 440), of the Cures Act.  To read the 21st Century Cures Act, click here.

Payments from Special Needs Trust Causes Section 8 Ineligibility

Special Needs Trusts (SNT's) are generally designed to prevent beneficiaries from losing their Medicaid and Social Security eligibility.  These trusts are not without challenges and possible disadvantages.  In resolving  Social Security and Medicaid issues, SNTs often sacrifice other opportunities.  HUD's Section 8 housing assistance program, for example, has no language in its rules that expressly recognizes and protects SNTs.  A federal district court recently held that a local housing authority properly counted payments from a SNT as income when it determined that a Section 8 beneficiary was no longer eligible for a housing voucher.  DeCambre v. Brookline Housing Authority (D.Mass., No. 14-13425-WGY, March 25, 2015).

Kimberly DeCambre is the beneficiary of a court-established first-party special needs trust that was funded with the proceeds from a $330,000 personal injury settlement.  Ms. DeCambre receives Supplemental Security Income (SSI) and Medicaid due to a variety of serious medical conditions, and she also received a Section 8 housing voucher.  In fall 2013, the Brookline Housing Authority (BHA), the local agency that administers Ms. DeCambre's housing voucher, informed Ms. DeCambre that she was no longer eligible for Section 8 because the trust had disbursed more than $60,000 during the year for her car, phone, Internet, veterinary care for her pets and travel expenses.   A hearing officer upheld the BHA's decision.

Ms. DeCambre filed suit against the BHA in state court and her claims were removed to federal court.  Ms. DeCambre claimed that the BHA violated her civil rights by counting the payments from the trust as income and by discriminating against her due to her disability.  She also raised several due process claims.  Instead of hearing arguments on Ms. DeCambre's request for a preliminary injunction, the parties agreed to a case stated hearing to resolve Ms. DeCambre's underlying claims. At this hearing, Ms. DeCambre posited that it was improper to treat the distributions from the trust as income when, according to Department of Housing and Urban Development (HUD) rules,  the same payments would not be considered income had she simply taken the settlement as a lump sum outside of a trust.   

The U.S. District Court for the District of Massachusetts reversed, ruling that the BHA properly terminated Ms. DeCambre's Section 8 benefits.  Although sympathizing with trust beneficiaries who have difficulty  retaining Section 8 benefits, the court determined that it is "unable to find any regulatory support for DeCambre's argument that her Trust expenditures must be excluded from annual income and that her Trust corpus remained a lump-sum settlement.  To the extent BHA treated DeCambre's expenditures as spending from an irrevocable trust, rather than from a personal settlement fund, the Court holds that their determination was a reasonable one." The court also ruled that Ms. DeCambre's due process claims failed because she did not have a property interest in Section 8 benefits and was afforded ample hearings.  The court concluded that Ms. DeCambre was not discriminated against due to her disability because HUD treats special needs trust and non-special needs trust beneficiaries equally when it comes to income attribution.

To read the full text of the court's decision in this case, click here. 

To read a previous article regarding the complexities involved in crafting SNTs, click here and here.

A Holiday Gift from an ABLE Congress!

Sara Wolff (center) calling on Congress to allow disabled
 Americans to save and still receive benefits like
 Social Security Disability Insurance payments and Medicaid

The following is a reprint from the blog of Michael Morris, the Executive Director of the National Disability Institute (NDI) in Washington:

Last night, the U.S. Senate overwhelmingly passed (76-16) the Achieving Better Life Experience (ABLE) Act. The bill now goes to President Obama for signing into law. Not since the passage of the Americans with Disabilities Act (ADA) in 1990 has Congress moved forward with a change in public policy as important and unprecedented as ABLE. The ABLE Act represents the first time there is clear recognition and sensitivity to the extra costs of living with a disability for children and adults with significant disabilities and their families. Every day, all across America, parents raising a child with a disability are confronted with costs not covered by insurance and various public assistance or benefits. The costs are as varied as modifying a home to be more accessible to using adaptive equipment and assistive technology that enhances learning, mobility, hearing and the ability to use a computer, all which improve quality of life experience. 

For adults with significant disabilities, extra costs can also include additional hours of personal assistance support to get out of bed, help with cooking and other daily living needs, as well as accessible transportation, housing and employment supports. 

The ABLE Act responds to these significant daily and weekly out-of-pocket expenses by creating, for the first time, a tax-advantaged savings account (an ABLE account). This account would cover the extra costs of living with a significant disability without adversely affecting continued eligibility for government benefits such as Supplemental Security Income (SSI) and Medicaid (health care). 

No piece of legislation before this Congress had more cosponsors – 380 House Members and 74 Senators – or received more bipartisan support across both the Democratic and Republican parties. ABLE is, above all, about fairness. Families raising children with significant disabilities do not want a handout and public assistance that comes with a life sentence in poverty. The disability community wants a hand up so they can be included in the economic mainstream as productive and valued members of inclusive workplaces and communities. ABLE offers, for some individuals and families (eligibility is limited to age of onset of disability by 26 years of age), an opportunity to plan for the future by setting aside up to $100,000 for expenses that may accrue over a lifetime, without the interest being taxed when the funds are removed. For some five million plus individuals and families who are likely to establish an ABLE account in the future, it is truly an early holiday present.

Thank you to Congress for passing the ABLE Act and improving the financial security of millions of Americans with significant disabilities and their families.

The National Disability Institute is a national not for profit corporation that is dedicated to "changing thinking and behavior that advance the financial stability and economic strength of persons with disabilities across the country.  Leveraging public and private resources, NDI is uniquely and singularly focused on promoting REAL ECONOMIC IMPACT for persons across the full spectrum of disabilities."  NDI's Real Economic Impact Blog is just one part of that mission.

Let us all join in the growing chorus of voices thanking Congress for this holiday gift.  You can read more about the ABLE Act here.  This blog will later carry a final description of the law as signed by the President.

SSA's Guide for Evaluating Special Needs Trusts Problematic

The Social Security Administration (SSA) recently instituted a nationally uniform procedure for review of special needs trusts for Supplemental Security Income (SSI) eligibility, routing all applications that feature trusts through Regional Trust Reviewer Teams (RTRTs) staffed with specialists who will review the trusts for compliance with SSI regulations. 

The SSA has also released its Trust Training Fact Guide, which will be used by the RTRTs and field offices when they evaluate special needs trusts.  In an article in the July/August 2014 issue of The ElderLaw Report, New Jersey attorney Thomas D. Begley, Jr., and Massachusetts attorney Neal A. Winston, both CELAs, discuss the 31-page guide in detail and caution that while it is a significant step forward in trust review consistency, it contains “a few notable omissions or terminology that might cause review problems.”  Following is the authors’ discussion of the problematic areas:  

• Structured Settlements. The guide states that additions/augmentations to a trust at/after age 65 would violate the rule that requires assets to be transferred to the trust prior to the individual attaining age 65. It does not mention that the POMS specifically authorizes such payments after age 65, so long as the structure was in place prior to age 65. [POMS SI 01120.203.B.1.c].

• First-/Third-Party Trust Distinction. Throughout the guide, there are numerous references to first-party trust terms or lack of terms that would make the trust defective and thus countable. These references do not distinguish between the substantial differences in requirements for first-party and third-party trusts.

• Court-Established Trusts/Petitions. This issue is more a reflection of an absurd SSA policy that is reflected accurately as agency policy in the guide, rather than an error or omission in the guide itself. This section, F.1.E.3, is titled “Who can establish the trust?” The guide states that creation of the trust may be required by a court order. This is consistent with the POMS. It would appear from the POMS that the court should simply order the trust to be created based upon a petition from an interested party. The potential pitfall described by the guide highlights is who may or may not petition the court to create a trust for the beneficiary. It states that if an “appointed representative” petitions the court to create a trust for the beneficiary, the trust would be improperly created and, thus, countable. Since the representative would be considered as acting as an agent of the beneficiary, the beneficiary would have improperly established the trust himself.

In order for a court to properly create a trust according to the guide, the court should order creation of a trust totally on its own motion and without request or prompting by any party related to the beneficiary. If so, who else could petition the court for approval? The plaintiff’s personal injury attorney or trustee would be considered an “appointed representative.” Would a guardian ad litem meet the test under the guardian creation authority? How about the attorney for the defendant, or is there any other person? If an unrelated homeless person was offered $100 to petition the court, would that make the homeless person an “appointed representative” and render the trust invalid? The authors have requested clarification from the SSA and are awaiting a response.

Until this issue is resolved, it might be prudent to try to have self-settled special needs trusts established by a parent, grandparent, or guardian whenever possible.

• Medicaid Payback/Administrative Fees and Costs. Another area of omission involves Medicaid reimbursement. The guide states that “the only items that may be paid prior to the Medicaid repayment on the death of the beneficiary of the trust are taxes due from the trust at the time of death and court filing fees associated with the trust. The POMS, [POMS SI 01120.203.B.1.h. and 203B.3.a], specifically states that upon the death of the trust beneficiary, the trust may pay prior to Medicaid reimbursement taxes due from the trust to the state or federal government because of the death of the beneficiary and reasonable fees for administration of the trust estate such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with the termination and wrapping up of the trust.

While noting that the guide, in coordination with training, “is a marked improvement for program consistency for trust review,” Begley and Winston caution advocates that “the guide should be considered as a summarized desk reference and training manual and not a definitive statement of SSA policy if inconsistent with the POMS.”