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Trust Law Alert: Special Needs Trust Fairness Act Pending (UPDATE: Passed)

Posted on: December 13th, 2016
special needs trust modificationUPDATE: The Special Needs Trust Fairness Act was signed by President Obama on December 13, 2016 shortly after this post was published.

An amendment to the Special Needs Trust Fairness Act passed the Senate a few months ago. A provision added by the House has prompted recirculation. As of this writing the Act awaits the president's signature. 

The Special Needs Trust Fairness Act would allow a disabled individual with the capacity to make legal decisions to execute a Special Needs Trust (SNT) for oneself. As of this writing, disabled individuals must rely on another party (family member or guardian) or the court to establish an SNT. Depending on the court system, potential delays could ensue when creating an SNT under existing law. 

SNTs allow the disabled beneficiary to receive trust distributions while remaining eligible for public benefits such as Medicaid. Without this type of trust, some individuals may have income or assets that exclude them from receiving public benefits.

The pending legislation may provide opportunities to individuals of all trusts to ensure long-term benefit of trust assets. For example, irrevocable trusts not created for special needs purposes might have terms that impose strict distribution amounts and intervals for beneficiaries. A beneficiary who later becomes disabled, or by some other means limited in their capacities, could be hindered by existing trust terms. Disabled individuals receiving trust income might disqualify for public benefits. Instead, the irrevocable trust beneficiary may be best served by an SNT. Irrevocable trusts can be modified in different ways depending on the trust terms and the state where the trust is administered. One option, decanting, allows the existing trust assets to be siphoned into a new trust, which can be an SNT. This would preserve the assets for the beneficiary’s use, the beneficiary’s eligibility for public benefits, and continue to serve the best needs of the beneficiary. 

Whether one is creating an SNT or modifying an existing trust, it may also be valuable to appoint a trust protector. A trust protector can be granted authority to oversee the trustee’s actions, ensure the beneficiary’s best interests are being met, and can modify trust terms without the hassle of court delay. Three out of the four states our trust attorneys practice in, North Carolina, Florida, and Tennessee, have legislation allowing for trust protectors. We provide trust protector services through TrustProtector, LLC.

Learn about various methods of trust modification and contact a trust attorney to discuss more.
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