A special needs trust (SNT) is a type of trust that allows a disabled individual or chronically ill individual to receive income, without hindering their eligibility for programs such as Social Security, Supplemental Social Security Income, Medicare, or Medicaid.

The first legislation regarding SNTs came about when Congress enacted the Omnibus Budget Reconciliation Act of 1993 (OBRA-1993) (42 U.S.C. Section 1396p(d)(40)(A).

This law granted a parent, grand- parent, legal guardian, or the court to create a self-settled SNT for a disabled individual with their own assets.

These trusts allowed the disabled individual to inherit or receive funds from lawsuits or settlements and not lose his or her government benefits.

The problem with this Act was that disabled individuals who have the capacity to create their own trusts were not able to do so.

Meaning, a disabled individual had to rely on another person to establish the trust on his or her behalf.

On Dec. 13, 2016, this issue was resolved via the Special Needs Trust Fairness Act. This act is a smaller part of a larger act entitled 21st Century Cures Act.

Basically, this law amended the previous legislation to include the word “individual” in the category of people able to create SNTs.

This simple amendment effectively allows a disabled individual, who has capacity, to create his or her own SNT.

This act will apply to SNTs drafted on or after Dec. 13, 2016.

There are two types of SNTs: Third-Party SNTs and First-Party SNTs.

A Third-Party SNTs is a trust created by a third party, funded with the third party’s assets, for the benefit of another person. A Third-Party SNT can be created by anyone other than the beneficiary.

These types of trusts are established so the disabled individual can inherit from the estate and-or the life insurance benefits of a parent, grandparent, or guardian.

Assets funded into this type of SNT are not recoverable by Medicaid, and the creator of the trust can name contingent beneficiaries to receive the trust funds upon the death of the disabled beneficiary.

A First-Party SNT is a trust created for the beneficiary with the beneficiary’s own assets. The enactment of the Special Needs Trust Fairness Act now allows not only a parent or legal guardian to establish such a trust for the disabled person, but allows the disabled person to establish it for himself or herself as well.

This is a huge benefit. It allows disabled individuals to plan and protect their own assets without the assistance of another.

First-Party SNTs must be irrevocable and must have language granting Medicaid the ability to be reimbursed from the Trust funds upon either the death of the beneficiary or termination of the trust.

SNTs are great tools to have if you or a loved one is disabled. However, SNTs are not the type of trust that should be created on your own. If you or a loved one are interested in created a SNT, it is important you contact an attorney well versed in special needs trusts.

Rebekah N. Freeman is an associate attorney with Elder Law & Estate Planning Center.