New Special Needs Trust Rules 2024: What to Know and How to Prepare

New Rules For Special Needs Trust

If you or a loved one lives with a disability, you may already know how a special needs trust can help maintain eligibility for certain public benefits. These unique trusts allow individuals with disabilities to set aside funds for their needs without losing access to vital programs like Medicaid and Supplemental Security Income (SSI).

Recently, federal law regarding special needs trusts was updated with new statutes and regulations. These changes impact everything from age limits and trust contributions to required oversight and accountability. Anyone currently administering a special needs trust or looking to establish one will need to understand the latest rules to stay compliant.

Let’s break down key updates regarding special needs trusts and provide tips to make the most of these important planning tools in 2024 and beyond.

Key Changes in the Latest Rules for Special Needs Trusts

Some of the most notable changes in federal law, under The Special Needs Trust Fairness Act of 2016, affect first-party special needs trusts in particular. First-party trusts are funded with assets belonging to the person with disabilities. Common sources include lawsuit settlements, inheritances, or work earnings.

Some key things to note about the new rules include:

  • Individuals with special needs can now establish their own first-party special needs trust without the need for a third party or going through the courts. This is a major change that enables more independence.
  • Trusts established by the person with special needs have the same benefits as those set up by parents, grandparents, guardians, etc.
  • To qualify, the trust must be funded with assets of the disabled individual under age 65 and contain payback provisions upon death.
  • A major goal of this law change is to increase the independence and empowerment of people with special needs by making it easier and more affordable to establish these trusts.

The latest rule changes have made it easier for individuals to establish their own first-party special needs trusts. However, proper guidelines must still be followed to ensure eligibility for government benefits. While first-party trusts are now more accessible, other types of special needs trusts remain important options as well. 

The needs, sources of funding, and family situation determine which type of trust is most appropriate. Next, we will explore the differences between first-party, third-party, and pooled special needs trusts in more detail.

Types of Special Needs Trusts

Special needs trusts are an important tool for providing supplemental support while preserving eligibility for government benefits. There are a few main options when establishing a special needs trust, each with its own rules, benefits, and drawbacks. Choosing the right trust starts with understanding the different types available.

There are several options when establishing a special needs trust. The three main types are first-party, third-party, and pooled trusts.

First-Party Trusts

A first-party special needs trust is funded with assets belonging to the person with disabilities. As discussed previously, new rules make it easier for individuals to create these for themselves. First-party trusts provide independence and security.

Third-Party Trusts

Third-party special needs trusts are funded by family members or others for the benefit of the individual with disabilities. Parents often establish these trusts to provide for children without jeopardizing government benefits.

Pooled Trusts

Pooled special needs trusts are administered by nonprofits and pool funds from many sources. This option is used when the family isn’t available to establish a trust. Pooled trusts have higher fees but provide professional management.

The optimal trust depends on the beneficiary’s needs, assets, and family support. Consulting a special needs planner helps determine the best trust for securing care while maintaining eligibility for public benefits.

Setting Up a First-Party Special Needs Trust Under the New Rules

The new rules have made it easier for individuals with special needs to establish their own trusts. However, careful steps must be taken to ensure the trust complies with regulations.

First, work with an experienced special needs attorney. The intricacies of federal law regarding these trusts require professional guidance to navigate properly.

Make sure to follow age and funding guidelines. While beneficiaries of any age can now create first-party SNTs, contributions must come from appropriate sources like the individual themselves, parents, or grandparents.

Strict procedures apply when funding the trust. Assets must be retitled in the trust’s name, not the individual’s, to maintain benefit eligibility. Our attorneys at Shields Law can help you fund the trust.

Additionally, name a trustee who understands the beneficiary’s needs, whether a family member or professional fiduciary. Following the rules meticulously guarantees the trust meets all federal requirements. This maintains the beneficiary’s access to vital government benefits they rely on. With proper guidance, the new regulations make securing a loved one’s future care more accessible.

Maintaining Eligibility and Benefits with a Special Needs Trust

Preserving your loved one’s eligibility for government benefits is one of the primary functions of a special needs trust. Medicaid and SSI provide vital support, so keeping that access is crucial.

Here are some best practices for trustees to maintain benefits:

  • Keep meticulous records. Document all trust expenditures and reporting. Annual accountings to Social Security are now required.
  • Make appropriate distributions. Payments for food, shelter, or other necessities could affect eligibility. Use trust funds for supplemental comforts and services only.
  • Consult frequently with the beneficiary’s support team. Collaborate with their case manager, doctors, and other professionals to understand current needs.
  • Be aware of payment procedures. Reimbursing beneficiaries directly for approved purchases could still impact benefits. Instead, trustees should pay vendors directly.
  • Seek professional guidance. An elder law or special needs planning attorney can provide invaluable advice regarding distributions.

Following these guidelines and the new federal rules conscientiously will help ensure your special needs trust beneficiary keeps vital public assistance while enjoying supplemental support from trust funds.

The Latest Chapter for Special Needs Trusts

Recent updates to federal law usher in important new changes for special needs trusts and those who depend on them. While the core purpose remains the same—providing supplemental support outside of public benefits for individuals with disabilities—the rules for properly establishing, funding, and administering these trusts are evolving.

Staying up-to-date on the latest statutes and understanding their real-world impacts will ensure your special needs trust continues working as intended. As with any complex legal process, guidance from an attorney well-versed in special needs trusts can prove invaluable every step of the way.

To explore how a special needs trust may help provide for your child or other loved one with disabilities, be sure to contact Shields Law. Our attorneys have extensive experience as counselors and advocates for Texas families planning for special needs. Contact us today to schedule a consultation.

Author Bio

Kevin Piwowarski Shields

Kevin Shields

Kevin Shields is a Founding Member and Special Education Lawyer at Shields Law Firm, representing children and families in special needs matters throughout Texas. Before becoming a lawyer, Kevin worked as a general education teacher and fought for increased inclusion time for his students receiving services. He advocated for his students by calling out providers who missed sessions and was often the dissenting voice at the IEP table.

Kevin obtained his Juris Doctor from Georgetown University Law School and holds a Bachelor of Arts from the University of Texas at Austin. He is admitted to practice law in Texas, Maryland, and Washington, D.C. He is also a member of the Council of Parent Attorneys and Advocates (COPAA) and holds memberships in the State Bar of Texas, focusing on School Law, Juvenile Law, and Child Protection Law. He is also a member of the Academy of Special Needs Planners.

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