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New law allows disabled individuals to more easily create self-settled special needs trusts

Families of those with special needs know that there are challenges to ensuring their loved one has adequate financial support as an adult. Although state and federal assistance is available to help those with special needs, these programs usually require families to meet strict financial requirements.

One option is to create a special needs trust. These are trust documents aimed at managing assets for the benefit of those with disabilities and other impairments. Special needs trusts put assets out of the control of the beneficiary to ensure that benefits programs do not count the assets against them for purposes of eligibility. Different states have different requirements regarding eligibility

Special needs trusts are established by one or more settlers. Special needs individuals sometimes act as a settler of their own trust, in some cases the sole settler. The latter are known as self-settled trusts. Up until recently, disabled individuals were unable to create self-settled trusts outside court unless they had a living parent or grandparent to self-settle the trust on their behalf. A $6.3 billion medical research funding bill known as the 21st Century Cures Act, which President Obama signed into law last month, included language which scrapped this requirement, allowing families of special needs individuals to address this problem more easily.

Under a section of the law titled "Fairness in Medical Supplemental Needs Trusts," special needs individuals will be able to create self-settled special needs trusts outside the judicial process, on their own and without the intervention of a parent or grandparent. The key requirement is that the disabled individual has to have the capacity to create a self-settled trust.

In our next post, we'll look briefly at the issue of capacity in estate planning and how it relates to special needs trusts.

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