By Swogger Bruce & Millar, Apr 10 2017 02:56PM
On December 13, 2016, President Obama signed the 21st Century Cures Act. One section of the law made an important change to estate planning for disabled individuals. In the past, a disabled individual could not establish their special needs trust. It would need to be established by a family member, guardian or court order. Courts in Northern Michigan are very helpful in establishing these trusts, but the process takes time, effort and money. Now a disabled individual, who is competent, can sign and establish his trust without having to rely on others.
Special needs trusts are often used to provide a disabled beneficiary with assets to improve his lifestyle without those assets counting against eligibility for most government benefits. The new law applies to first-party special needs trusts which are also known as Medicaid payback trusts. Assets belonging to the disabled individual are placed in a trust and become excluded for purposes of applying for government benefits. Because the assets belonged to the individual, there must be a provision that provides that at the disabled beneficiary’s death any state that provided Medicaid must be paid back before distributing the remainder to a beneficiary’s heirs.
The two most common times to establish a first party special needs trust: (1) receiving an inheritance or (2) receiving an award from a lawsuit. We recently had two special needs trusts approved by the Benzie County Probate Court for two gentlemen who received criminal restitution.
Third-party special needs trusts are established as part of a family member’s estate plan. The provisions are similar, but because the assets never technically belonged to the beneficiary there do not have to be any Medicaid payback provisions. A third-party special needs trust allows a better result than receiving an inheritance and then putting it into a Medicaid payback trust.
If you have a disabled child or grandchild, a third-party special needs trust can improve his quality of life without causing him to lose government benefits. If you have received an inheritance or an award from a personal injury lawsuit, a first-party special needs trust can protect the benefits you are already receiving.