Description of SB 912

142 Trusts Can Be Supplemental Needs Trusts

Governor Bush signed SB 912 on May 19, 1997. SB 912 becomes effective September 1, 1997. SB 912 amends Section 142.005 of the Property Code (the section governing so-called 142 Trusts) by adding Subsection (g) to read as follows:

(g) Notwithstanding any other provision of this chapter, if the court finds that it would be in the best interests of the minor or incapacitated person for whom a trust is created under this section, the trust may contain provisions determined by the court to be necessary to establish a special needs trust as specified under 42 U.S.C. Section 1396p(d)(4)(A).

Since OBRA '94 was enacted in 1994, federal law has permitted certain trusts created with a Medicaid recipient's own funds to exist without disqualifying the recipient from Medicaid eligibility. In order to be effective, these trusts must (1) limit the trustee's power to make distributions to so-called "special needs" or "supplemental needs" and (2) provide that the state be reimbursed from the trust at trust termination for Medicaid payments it advanced. Prior to adoption of SB 912, trusts created under Section 142.005 of the Property Code had a mandatory health, education, maintenance and support distribution standard and at least arguably did not permit reimbursement of the state upon trust termination. Despite the terms of Section 142.005, many Texas courts have been creating special needs trusts since 1994.

SB 912 was enacted to give courts creating 142 Trusts the flexibility needed to meet the requirements of 42 U.S.C. Section 1396p(d)(4)(A).

The act does not specify whether or not it applies to trusts created prior to its effective date or whether such trusts must be modified to fall within the statute's protection.

HB 1314, which (as of May 28, 1997) had passed both houses and was awaiting action by the Governor, would make similar changes to the rules governing trusts created under Section 867 of the Texas Probate Code.


Copyright 1997 by Glenn M. Karisch. This page was last revised on May 28, 1997.