SPECIAL NEEDS SPECIAL NEEDS U.S.C. U.S.C. 1396p(d)(4)(A) - - PDF document

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Presented by Presented by Special Needs Alliance Special Needs Alliance for for The National Big Sky Visioning Sessions The National Big Sky Visioning Sessions and the and the 2007 United Cerebral Palsy Annual Conference 2007 United Cerebral Palsy Annual Conference Buena Vista Palace and Resort Buena Vista Palace and Resort Orlando, Florida Orlando, Florida April 12 April 12 – – 14, 2007 14, 2007

SPECIAL NEEDS SPECIAL NEEDS TRUSTS TRUSTS

Special Needs Alliance

TRUSTS FOR THE BENEFIT OF TRUSTS FOR THE BENEFIT OF A DISABLED BENEFICIARY A DISABLED BENEFICIARY

• Special Needs

Special Needs “ “Payback Payback” ” Trust Trust

• U.S.C.

U.S.C. § §1396p(d)(4)(A) 1396p(d)(4)(A)

• Third Party Special Needs Trust

Third Party Special Needs Trust

• Also known as Supplemental Benefits Trust

Also known as Supplemental Benefits Trust

Special Needs Alliance

Finding a Special Needs Attorney Finding a Special Needs Attorney

• Special Needs Alliance

Special Needs Alliance

• Network of disability and public benefits

Network of disability and public benefits attorneys. attorneys.

• www.specialneedsalliance.com

www.specialneedsalliance.com

• 1.877.572.8472

1.877.572.8472

Special Needs Alliance

GENERAL TRUST GENERAL TRUST REQUIREMENTS REQUIREMENTS

• Supplement, not supplant, government

Supplement, not supplant, government benefits benefits

• Definition of

Definition of “ “special need special need” ” or

• r

“ “supplemental benefit supplemental benefit” ”

• No definitive explanation

No definitive explanation

Special Needs Alliance

What is NOT a Special Need What is NOT a Special Need

• Basic necessities of life

Basic necessities of life

• i.e., food, clothing, shelter, utilities

i.e., food, clothing, shelter, utilities

• Incidental spending money (unearned

Incidental spending money (unearned income) income)

• Gifts

Gifts

• Insurance on life of disabled beneficiary

Insurance on life of disabled beneficiary

Special Needs Alliance

Special Needs Special Needs “ “Payback Payback” ” Trust Trust

• Established with assets of disabled

Established with assets of disabled individual individual

• Individual must be under 65 at time of the

Individual must be under 65 at time of the establishment and funding establishment and funding

• Individual must be disabled as defined in

Individual must be disabled as defined in Social Security Act Social Security Act

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Special Needs Alliance

SOCIAL SECURITY ACT SOCIAL SECURITY ACT DEFINITION OF DEFINITION OF “ “DISABLED DISABLED” ”

• “

“unable to engage in any substantial, unable to engage in any substantial, gainful activity by reason of any medically gainful activity by reason of any medically determinable physical or mental determinable physical or mental impairment which can be expected to impairment which can be expected to result in death or which has lasted or can result in death or which has lasted or can be expected to last for a continuous be expected to last for a continuous period of not less than twelve months period of not less than twelve months” ”

Special Needs Alliance

DEFINITION OF DISABLED FOR DEFINITION OF DISABLED FOR CHILD UNDER 18 CHILD UNDER 18

• Child

Child “ “suffers from any medically suffers from any medically determinable physical or mental determinable physical or mental impairment of comparable severity impairment of comparable severity” ” to to adult adult

Special Needs Alliance

ADDITIONAL REQUIREMENTS ADDITIONAL REQUIREMENTS OF PAYBACK TRUSTS OF PAYBACK TRUSTS

• Trust may be established by

Trust may be established by

• Parent or

Parent or

• Grandparent or

Grandparent or

• Legal Guardian or

Legal Guardian or

• Court

Court

Special Needs Alliance

PAYBACK REQUIREMENTS PAYBACK REQUIREMENTS

• Medicaid agency entitled to

Medicaid agency entitled to reimbursement from any assets remaining reimbursement from any assets remaining in trust upon death of beneficiary or trust in trust upon death of beneficiary or trust termination for other reasons termination for other reasons

Special Needs Alliance

PAYBACK REQUIREMENTS PAYBACK REQUIREMENTS

• Reimbursement

Reimbursement “ “dollar for dollar dollar for dollar” ” up to up to amount paid by Medicaid on behalf of amount paid by Medicaid on behalf of individual individual

Special Needs Alliance

Court Court-

• created Special Needs

created Special Needs Trusts Trusts

• If trust is created or authorized by court

If trust is created or authorized by court may retain oversight in following areas: may retain oversight in following areas:

• Accountings

Accountings

• Trustee

Trustee’ ’s commissions s commissions

• Investments

Investments

• Limitations on Purchases of Major Assets

Limitations on Purchases of Major Assets

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Special Needs Alliance

GOVERNMENT BENEFITS GOVERNMENT BENEFITS

• SSI

SSI

• Medicaid

Medicaid

• SSD

SSD

• Medicare

Medicare

• Federally

Federally-

• Assisted Housing

Assisted Housing

• Other Agency Supported Housing

Other Agency Supported Housing

Special Needs Alliance

LIENS LIENS

• Medicaid

Medicaid

• Arkansas HHS v. Ahlborn, 2006 U.S. Supreme

Arkansas HHS v. Ahlborn, 2006 U.S. Supreme Court decision Court decision

• Medicare

Medicare

• State Department of Human Services

State Department of Human Services

• Workers Compensation

Workers Compensation

• ERISA

ERISA

Special Needs Alliance

IMPORTANT! IMPORTANT!

• CHECK STATE REQUIREMENTS!

CHECK STATE REQUIREMENTS!

Special Needs Alliance

FUNDING ISSUES FUNDING ISSUES

• Structured Settlements

Structured Settlements

• Payments made directly to disabled

Payments made directly to disabled beneficiary may render beneficiary ineligible beneficiary may render beneficiary ineligible to receive means to receive means-

• tested government benefits

tested government benefits

• Trust should be payee.

Trust should be payee.

• Payments should

Payments should “ “pour over pour over” ” into trust. into trust.

Special Needs Alliance

CHECKLIST FOR SELF CHECKLIST FOR SELF-

• SETTLED

SETTLED SPECIAL NEEDS TRUST SPECIAL NEEDS TRUST

• 1. Check for compliance with federal law.
• 1. Check for compliance with federal law.
• Is the beneficiary under age 65?

Is the beneficiary under age 65?

• Is the beneficiary

Is the beneficiary “ “disabled? disabled?” ”

• Is the trust created by the beneficiary

Is the trust created by the beneficiary’ ’s s parent, grandparent, guardian or by the parent, grandparent, guardian or by the court? court?

• Does the trust contain a provision requiring

Does the trust contain a provision requiring repayment of the state Medicaid program repayment of the state Medicaid program upon termination of the trust? upon termination of the trust?

Special Needs Alliance

CHECKLIST FOR SELF CHECKLIST FOR SELF-

• SETTLED

SETTLED SPECIAL NEEDS TRUST SPECIAL NEEDS TRUST

2.

• 2. Check for compliance with state law.

Check for compliance with state law. 3.

• 3. Verify that statutory liens have been paid

Verify that statutory liens have been paid prior to the funding of the trust. prior to the funding of the trust.

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Special Needs Alliance

THIRD PARTY SUPPLENTAL THIRD PARTY SUPPLENTAL BENEFITS TRUST BENEFITS TRUST

• Living trust or

Living trust or

• Testamentary trust created by will

Testamentary trust created by will

Special Needs Alliance

NO PAYBACK CLAUSE? NO PAYBACK CLAUSE?

• Generally, no payback provision required

Generally, no payback provision required BUT BUT

• Check state regulations to make sure no

Check state regulations to make sure no payback is required. payback is required.

• Include specific dispositive provisions for

Include specific dispositive provisions for final disposition of trust assets. final disposition of trust assets.

Special Needs Alliance

Estate Recovery Estate Recovery

• State regulations may provide for right of

State regulations may provide for right of recovery of assets held in testamentary recovery of assets held in testamentary trust established by third party, including trust established by third party, including community spouse for benefit of surviving community spouse for benefit of surviving beneficiary spouse, where disabled beneficiary spouse, where disabled beneficiary transferred assets to beneficiary transferred assets to predeceased third party and those assets predeceased third party and those assets were used to fund the trust. were used to fund the trust.

Special Needs Alliance

THIRD PARTY TRUST THIRD PARTY TRUST

• Periodic additions can be made through lifetime

Periodic additions can be made through lifetime giving or inheritances. giving or inheritances.

• Rights of withdrawal (

Rights of withdrawal (“ “Crummey Crummey” ” rights) should rights) should be incorporated in situations of lifetime giving. be incorporated in situations of lifetime giving.

• Exclude disabled beneficiary from serving as

Exclude disabled beneficiary from serving as Crummey beneficiary. Crummey beneficiary.

Special Needs Alliance

ADDITIONS TO TRUST ADDITIONS TO TRUST

• Unless payback trust is very small,

Unless payback trust is very small, discourage additional funding by third discourage additional funding by third parties parties

• Additions of beneficiary

Additions of beneficiary’ ’s assets to third s assets to third party trust may result in ineligibility for party trust may result in ineligibility for certain government benefits certain government benefits

Special Needs Alliance

Tax Treatment of Supplemental Tax Treatment of Supplemental Benefits Trust Benefits Trust

• Unless it is an elective share trust

Unless it is an elective share trust requiring all income to be paid to surviving requiring all income to be paid to surviving spouse, testamentary SBT will be taxed as spouse, testamentary SBT will be taxed as a complex trust. a complex trust.

• As distributions are made, whether from

As distributions are made, whether from income or principal, the beneficiary will be income or principal, the beneficiary will be taxed with his or her proportionate share taxed with his or her proportionate share

• f
• f “

“Distributable Net Income Distributable Net Income” ” ( (“ “DNI DNI ” ”). ).

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Special Needs Alliance

Tax Treatment of Supplemental Tax Treatment of Supplemental Benefits Trust Benefits Trust

• If trust distributions do not equal

If trust distributions do not equal “ “Net Net Accounting Income Accounting Income” ” or are less than DNI,

• r are less than DNI,

trust will pay tax on accumulated income trust will pay tax on accumulated income at the federal and state level. at the federal and state level.

• Trust will also pay tax on short and long

Trust will also pay tax on short and long term capital gains. term capital gains.

• If capital losses were not applied to other

If capital losses were not applied to other current year gains, the losses will be used current year gains, the losses will be used to reduce accumulated income, if any. to reduce accumulated income, if any.

Special Needs Alliance

Tax Treatment of Supplemental Tax Treatment of Supplemental Benefits Trust Benefits Trust

• Elective share trust will be taxed as a

Elective share trust will be taxed as a “ “simple trust. simple trust.” ”

• Short and long term capital gains will be

Short and long term capital gains will be included in DNI and taxed to the trust included in DNI and taxed to the trust unless otherwise distributed to the unless otherwise distributed to the spouse. spouse.

Special Needs Alliance

Trust Administration Issues Trust Administration Issues

• Must consider resource and income

Must consider resource and income limitations of means limitations of means-

• tested benefits such

tested benefits such as SSI and Medicaid as SSI and Medicaid

Special Needs Alliance

SSI Resource Limitations SSI Resource Limitations

• Single beneficiary can have no more than

Single beneficiary can have no more than $2,000 worth of $2,000 worth of “ “countable resources. countable resources.” ”

Special Needs Alliance

Common SSI Excluded Resources Common SSI Excluded Resources

• The home, if it is the beneficiary

The home, if it is the beneficiary’ ’s s “ “principal principal place of residence. place of residence.” ”

• Household goods and personal effects

Household goods and personal effects (household furniture, furnishings and equipment (household furniture, furnishings and equipment commonly found in or about a home). commonly found in or about a home).

• Vehicle

Vehicle

• Life insurance owned by individual (and spouse,

Life insurance owned by individual (and spouse, if any) if face value does not exceed $1,500. if any) if face value does not exceed $1,500.

• Burial spaces and certain funds up to $1,500 for

Burial spaces and certain funds up to $1,500 for burial expenses. burial expenses.

Special Needs Alliance

Checklist for Evaluating SSI Checklist for Evaluating SSI Resource Limitations Resource Limitations

1. 1. Determine whether the asset to be purchased Determine whether the asset to be purchased is exempt from being counted by SSI. is exempt from being counted by SSI. 2. 2. If the asset is countable consider whether the If the asset is countable consider whether the $2,000 resource limitation will be excluded in $2,000 resource limitation will be excluded in light of the following: light of the following:

• A. Other countable resources owned by the
• A. Other countable resources owned by the

beneficiary. beneficiary.

• B. Other countable resources owned by parents of
• B. Other countable resources owned by parents of

minor beneficiary if residing in same household minor beneficiary if residing in same household

• C. Other countable resources owned by spouse.
• C. Other countable resources owned by spouse.

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Special Needs Alliance

State Medicaid Resource State Medicaid Resource Limitations Limitations

• Consult with local attorney or check state

Consult with local attorney or check state Medicaid manual to determine state Medicaid manual to determine state Medicaid resource limitations. Medicaid resource limitations.

• Certain types of resources are exempt.

Certain types of resources are exempt.

• Exempt resources can be no more

Exempt resources can be no more restrictive than for SSI. restrictive than for SSI.

Special Needs Alliance

Common Medicaid Excluded Common Medicaid Excluded Assets Assets

• Principal residence

Principal residence

• Proceeds from sale of home or other real

Proceeds from sale of home or other real property used to purchase another home. property used to purchase another home.

• Household goods and personal effects

Household goods and personal effects

• Vehicle

Vehicle

• Life insurance if face value does not exceed

Life insurance if face value does not exceed $1,500. $1,500.

• Burial vaults, crypts and plots up to $1,500.

Burial vaults, crypts and plots up to $1,500.

• Burial contracts of a reasonable amount if

Burial contracts of a reasonable amount if irrevocable. irrevocable.

Special Needs Alliance

Deficit Reduction Act of 2005 Deficit Reduction Act of 2005

• Extends Medicaid's "look

Extends Medicaid's "look-

• back" period for

back" period for all asset transfers from three to five years. all asset transfers from three to five years.

• Changes the start of the penalty period for

Changes the start of the penalty period for transferred assets from the date of transferred assets from the date of transfer to the date when the individual transfer to the date when the individual transferring the assets enters a long transferring the assets enters a long-

• term

term care facility and would otherwise be care facility and would otherwise be eligible for Medicaid coverage. eligible for Medicaid coverage.

Special Needs Alliance

Deficit Reduction Act of 2005 Deficit Reduction Act of 2005

• Prohibits States from "rounding down" fractional

Prohibits States from "rounding down" fractional periods of ineligibility when determining periods of ineligibility when determining ineligibility periods resulting from asset ineligibility periods resulting from asset transfers. transfers.

• Permits States to treat multiple transfers of

Permits States to treat multiple transfers of assets as a single transfer and begin any penalty assets as a single transfer and begin any penalty period on the earliest date that would apply to period on the earliest date that would apply to such transfers. such transfers.

Special Needs Alliance

Deficit Reduction Act of 2005 Deficit Reduction Act of 2005

• Establishes new rules for the treatment of

Establishes new rules for the treatment of annuities, including a requirement that the state annuities, including a requirement that the state be named as the remainder beneficiary. be named as the remainder beneficiary.

• Allows Continuing Care Retirement Communities

Allows Continuing Care Retirement Communities to require residents to spend down their to require residents to spend down their declared resources, including a resident declared resources, including a resident’ ’s s entrance fee, before applying for Medicaid. entrance fee, before applying for Medicaid.

Special Needs Alliance

Deficit Reduction Act 0f 2005 Deficit Reduction Act 0f 2005

• Requires all states to apply the so

Requires all states to apply the so-

• called

called “ “income income-

• first

first” ” rule to community spouses who rule to community spouses who appeal for an increased resource allowance appeal for an increased resource allowance based on their need for more funds invested to based on their need for more funds invested to meet their minimum income requirements. meet their minimum income requirements.

• Requires the purchase of a life estate to be

Requires the purchase of a life estate to be included in the definition of "assets" unless the included in the definition of "assets" unless the purchaser resides in the home for at least one purchaser resides in the home for at least one year after the date of purchase. year after the date of purchase.

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Special Needs Alliance

Deficit Reduction Act of 2005 Deficit Reduction Act of 2005

• Mandates that funds loaned in exchange for a

Mandates that funds loaned in exchange for a promissory note or mortgage be included among promissory note or mortgage be included among assets unless the repayment terms are assets unless the repayment terms are actuarially sound; provide for equal payments actuarially sound; provide for equal payments and prohibits the cancellation of the balance and prohibits the cancellation of the balance upon the death of the lender. upon the death of the lender.

• Renders any individual with home equity above

Renders any individual with home equity above $500,000 ineligible for Medicaid nursing home $500,000 ineligible for Medicaid nursing home benefits, although states may raise this benefits, although states may raise this threshold as high as $750,000. threshold as high as $750,000.

Special Needs Alliance

Checklist for Evaluating Medicaid Checklist for Evaluating Medicaid Asset Limitations Asset Limitations

• 1. Determine whether the applicable state
• 1. Determine whether the applicable state

Medicaid program counts resources. Medicaid program counts resources.

• 2. If resources are counted, determine
• 2. If resources are counted, determine

whether the asset to be purchased is whether the asset to be purchased is exempt from being counted by the state. exempt from being counted by the state.

Special Needs Alliance

Checklist for Evaluating Medicaid Checklist for Evaluating Medicaid Asset Limitations Asset Limitations

3. 3. If the asset is countable, consider whether If the asset is countable, consider whether the asset limitation for Medicaid benefits will the asset limitation for Medicaid benefits will be exceeded in light of the following: be exceeded in light of the following:

• A. Other countable assets owned by the
• A. Other countable assets owned by the

beneficiary. beneficiary.

• B. Other countable assets owned by parents
• B. Other countable assets owned by parents
• f minor beneficiary if residing in same
• f minor beneficiary if residing in same

household household

• C. Other countable assets owned by spouse.
• C. Other countable assets owned by spouse.

Special Needs Alliance

SSI Monthly Payments SSI Monthly Payments

• SSI consists of monthly payments to

SSI consists of monthly payments to beneficiary. beneficiary.

• Base amount is called the

Base amount is called the “ “Federal Benefit Federal Benefit Rate. Rate.” ”

• $643.00 in 2007

$643.00 in 2007

• Changes every year according to cost of living

Changes every year according to cost of living

• States sometimes increase base amount

States sometimes increase base amount (adjusted each year). (adjusted each year).

Special Needs Alliance

SSI Income SSI Income

• Anything beneficiary can receive in cash or

Anything beneficiary can receive in cash or in kind that can be used to meet needs for in kind that can be used to meet needs for food and shelter. food and shelter.

• Income diminishes amount of SSI

Income diminishes amount of SSI payment. payment.

Special Needs Alliance

SSI Income Limitations SSI Income Limitations

• Earned Income

Earned Income

• Wages, net earnings from self

Wages, net earnings from self-

• employment,

employment, federal income tax refunds. federal income tax refunds.

• Excluded Earned Income

Excluded Earned Income

• Food stamps, school lunches, energy

Food stamps, school lunches, energy assistance payments and certain educational assistance payments and certain educational grants and loans. grants and loans.

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Special Needs Alliance

SSI Income Limitations SSI Income Limitations

• Unearned Income

Unearned Income

• All income that is not earned income.

All income that is not earned income.

• Includes annuities, pensions, other periodic

Includes annuities, pensions, other periodic payments, alimony and support payments, payments, alimony and support payments, dividends, interest, rents, death benefits, dividends, interest, rents, death benefits, prizes and awards, gifts and inheritances, prizes and awards, gifts and inheritances, support and maintenance provided for support and maintenance provided for beneficiary. beneficiary.

Special Needs Alliance

SSI Income Limitations SSI Income Limitations

• Payments from supplemental benefits

Payments from supplemental benefits trust TO beneficiary are unearned income. trust TO beneficiary are unearned income.

Special Needs Alliance

SSI Income Limitations SSI Income Limitations

• Excluded unearned income

Excluded unearned income

• Portions of grants, scholarships or fellowships

Portions of grants, scholarships or fellowships used to pay tuition or other educational used to pay tuition or other educational expenses expenses

• 1/3 of child support payments received by a

1/3 of child support payments received by a minor minor

• $20 per month.

$20 per month.

• After that, unearned income reduces SSI

After that, unearned income reduces SSI payment by 100 cents for every dollar of payment by 100 cents for every dollar of unearned income received. unearned income received.

Special Needs Alliance

SSI Income Limitations SSI Income Limitations

• In Kind Income

In Kind Income

• Any kind of food or shelter given to the beneficiary.

Any kind of food or shelter given to the beneficiary.

• If SBT pays beneficiary

If SBT pays beneficiary’ ’s rent or portion of cost of s rent or portion of cost of food, trust is providing in kind income. food, trust is providing in kind income.

• Presumption that food or shelter provided is worth

Presumption that food or shelter provided is worth 1/3 of the SSI payment otherwise entitled to plus 1/3 of the SSI payment otherwise entitled to plus $20.00. $20.00.

• Beneficiary can rebut presumption by proving value of

Beneficiary can rebut presumption by proving value of in kind income is less than presumed value. in kind income is less than presumed value.

Special Needs Alliance

Choosing Appropriate Trustee Choosing Appropriate Trustee

• Can post a bond or is already bonded.

Can post a bond or is already bonded.

• Has knowledge of means

Has knowledge of means-

• tested public

tested public benefits eligibility requirements such as benefits eligibility requirements such as SSI and Medicaid. SSI and Medicaid.

• Understands applicable investment

Understands applicable investment principles. principles.

• (Prudent Investor Act may apply).

(Prudent Investor Act may apply).

• Is sensitive to special needs beneficiary

Is sensitive to special needs beneficiary and family. and family.

Special Needs Alliance

Home Ownership Home Ownership

• Options include:

Options include:

• Trust owns house, rent is not charged.

Trust owns house, rent is not charged.

• Trust owns house, rent is charged.

Trust owns house, rent is charged.

• Trust buys house and transfers house to

Trust buys house and transfers house to beneficiary beneficiary

• Trust buys fractional interest in house, such

Trust buys fractional interest in house, such as life estate. as life estate.

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Special Needs Alliance

MODIFYING IMPROPERLY MODIFYING IMPROPERLY DRAFTED SNT DRAFTED SNT

• May be able to modify or reform trust

May be able to modify or reform trust

• Trustee may be able to transfer assets

Trustee may be able to transfer assets into another SNT without court approval into another SNT without court approval