The Special Needs Trust Fairness Act (Section 5007 of the 21st Century Cures Act) was signed by President Obama on February 13, 2016. The Act changes a provision relating to self-settled special needs trusts that formerly prevented the disabled individual from establish his or her own special needs trust. Prior to February 13, 2016, the law provided that a self-settled trust could only be established by a parent, grandparent, guardian or court. Special needs advocacy groups found the old law offensive because it seemed to presume that a disabled individual lacked capacity to make his or her own decisions.
The old rule created problems beyond the inconvenience (or lack of dignity) associated with requiring that a parent, grandparent, guardian or court establish the trust. In Draper v. Colvin, No. 13-2757 (8th Cir. 2015), the parents of a special needs child asked a court to approve establishment of a special needs trust. However, after the court approved the trust, the parents used their power of attorney to transfer the child’s assets into the trust. The Social Security Administration took the position that the initial funding of the trust with a power was part of the act of establishing the trust, and since an agent under a power of attorney is acting for his or her principal, the disabled child actually established the trust. The result was the trust was ineffective. The Special Needs Trust Fairness Act eliminates this type of issue.