DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland21244-1850 
 
Center for Medicaid and CHIP Services 
SMD # 17-001 
 
RE: Implications of the Cures Act 
for Special Needs Trusts 
 
 
August 2, 2017 
 
Dear State Medicaid Director: 
 
Section 5007 of the 21st Century Cures Act (the Cures Act), Pub. L. No. 114-255, supports the 
independence of individuals with disabilities by permitting them to set up a special needs trust on 
their own behalf, rather than having to rely on a third party to do so.  Special needs trusts 
generally permit individuals living with disabilities who are under age 65 to set aside assets to 
meet their needs without impacting their eligibility for Medicaid.  This letter provides guidance 
to states on the implications of section 5007 of the Cures Act, entitled Fairness in Medicaid 
Supplemental Needs Trusts, for individuals who have disabilities.  
 
Background 
 
Section 1917(d)(3) of the Social Security Act (the Act) prescribes the rules state Medicaid 
agencies must apply in evaluating funds in, contributions to, and distributions from, trusts that 
are funded with a Medicaid applicants or beneficiarys own assets.  In the case of a revocable 
trust, the general rule is that the corpus is considered an available resource to the individual; any 
distributions from the corpus to or for the benefit of the individual are considered income to the 
individual; and any distributions or payments from the corpus used for other purposes are treated 
as an asset transfer subject to the provisions of section 1917(c) of the Act.  Under section 1917(c) 
of the Act, an asset transfer may result in a coverage penalty if the individual seeks coverage of 
nursing facility or other long-term services and supports but did not receive fair market value in 
return for the transfer. 
 
In the case of an irrevocable trust, if payments may be made to or for the individuals benefit 
from any portion of the corpus, that portion is considered an available resource to the individual, 
and payments from that portion made to or for the individuals benefit are considered income to 
the individual; otherwise, any payment made from the portion of an irrevocable trust that may be 
used for the individuals benefit is treated as an asset transfer subject to section 1917(c) of the 
Act.  Further, if the individuals income or assets are used to fund an irrevocable trust, any 
portion of the corpus funded by such income or assets from which no payment may be made to 
or for the benefit of the individual under any circumstances shall be treated, under section 
1917(d)(3)(B) of the Act, as an asset transfer subject to section 1917(c) of the Act.1    
                                                           
1 If only a portion of the individuals assets placed in the trust is unavailable to or for the benefit of the individual, 
that portion is considered an asset transfer subject to the rules of section 1917(c) of the Act.   Page 2  State Medicaid Director 
 
 
Under section 1917(d)(4) of the Act, certain types of trusts (section 1917(d)(4) trusts) are not 
subject to the rules set forth in section 1917(d)(3) of the Act described above, but instead, are 
most commonly evaluated under the general trust rules of the supplemental security income 
program (SSI) program. 2  Under these rules, the corpus of a revocable trust which is funded with 
an individuals assets and which can be used for the individuals benefit is generally a countable 
resource to the individual, but distributions from the trust for the individuals benefit are 
considered a conversion of a resource (instead of as countable income, as is generally the case 
under section 1917(d)(3) of the Act).  Under general SSI trust rules, the corpus of an irrevocable 
trust funded with an individuals assets is not generally a countable resource to the individual, 
even if the corpus may be used for the individuals benefit, although payments from the 
irrevocable trust to the individual or on his or her behalf will generally be countable income to 
the individual.  
 
Section 1917(c)(2)(B)(iv) of the Act also exempts from asset transfer penalties transfers of 
income or assets to a trust which is established solely for the benefit of a person with a disability 
under age 65.  Thus, the application of SSI rules regarding irrevocable trusts, in conjunction with 
section 1917(c)(2)(B)(iv) of the Act, means that an irrevocable special needs trust described in 
section 1917(d)(4)(A) of the Act, established for a person with a disability who is under age 65 
using the individuals own assets, is neither counted as a resource nor subject to the transfer-of-
asset penalties.   
 
Special Needs Trusts Under the Cures Act 
 
For a trust to meet the definition of a special needs trust described in section 1917(d)(4)(A) of 
the Act, the trust must: contain the assets of an individual under age 65 who has a disability; be 
established for the benefit of such individual; and direct that the state will receive all amounts 
remaining in the trust upon the death of such individual up to an amount equal to the total 
medical assistance paid by the state on the individuals behalf.  Prior to the Cures Act, a special 
needs trust also had to be established by a parent, grandparent, legal guardian of the individual, 
or a court.3 
 
The requirement that a third party establish a special needs trust, which is not imposed on the 
other section 1917(d)(4) trusts, was identified by many stakeholders as a barrier to maximizing 
the independence of people with disabilities.  Section 5007(a) of the Cures Act addressed this 
criticism for special needs trusts established on or after the date of the laws enactment, 
December 13, 2016.   
 
Specifically, section 5007(a) of the Cures Act amended section 1917(d)(4)(A) of the Act to add 
the individual (i.e., the trust beneficiary) to the list of people who may establish a special needs 
                                                           
2 See SI 01120.200 of the Social Security Administrations Program Operations Manual System (POMS), Trusts, 
General  Including Trusts Established Prior to 1/1/00, Trusts Established with the Asset of Third Parties and Trusts 
Not Subject to Section 1613(e) of the Social Security Act, available at 
https://secure.ssa.gov/apps10/poms.nsf/lnx/0501120200). 
3 While a special needs trust must be established using income or assets of the trust beneficiary, third party 
contributions to a special needs trust are permitted, provided that the individual is the sole beneficiary of the trust. 
(See Section 3259.7(A) of the State Medicaid Manual.)  Page 3  State Medicaid Director 
 
 
trust on the individuals behalf.  This means that 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.   
 
The other defining features of a special needs trust remain unchanged under the amendments 
made by the Cures Act  i.e., the individual must be under age 65 and have a disability; the trust 
must be funded, at least in part, with the individuals own income or assets; and the terms of the 
trust must direct that amounts remaining in the trust upon the death of the individual will be paid 
to the state up to an amount equal to total medical assistance paid.  Trusts established prior to 
December 13, 2016, by an individual with a disability for his or her own benefit do not qualify as 
a special needs trust. However, trusts established by an eligible third party before and after this 
date still qualify as a special needs trust.  
 
Please update your states Medicaid trusts rules accordingly.  If you have any questions, please 
contact Gene Coffey at (410) 786-2234, or gene.coffey@cms.hhs.gov, or your SOTA team lead.  
 
 
Sincerely, 
 
/s/ 
 
Brian Neale 
                    Director