Special needs trusts have a new level of flexibility and federal officials are working to ensure that state Medicaid directors understand the implications.

Under a law passed late last year, individuals with disabilities can for the first time establish special needs trusts for themselves.

The shift, designed to make saving money easier for those with disabilities, is significant. Previously, trusts had to be created by a third party.

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Now, federal Medicaid officials are offering guidance on what the change means for state programs.

“A trust established on or after December 13, 2016, by an individual with a disability under age 65 for his or her own benefit can qualify as a special needs trust, conferring the same benefits as a special needs trust set up by a parent, grandparent, legal guardian or court,” wrote Brian Neale, director of the Center for Medicaid and CHIP Services in a letter to state Medicaid directors this month. “The other defining features of a special needs trust remain unchanged.”

To qualify as a special needs trust, Neale said that a trust must contain the assets of an individual with a disability who’s under age 65, be created for that person’s benefit and include a provision that any remaining assets be repaid to the state at the time of that person’s death up to the value that the state provided in medical assistance.

In many cases individuals with disabilities face a cap on the assets they can have in their name in order to qualify for Medicaid and other government programs. Special needs trusts are one of a few ways that individuals with disabilities can accrue more assets without losing eligibility.

Allowing individuals to form trusts for themselves “supports the independence of individuals with disabilities,” Neale noted in the guidance.

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