Government programs like Medicaid, SSI and Veterans Pension can provide substantial support for seniors and for people with disabilities. But these are “needs-based programs” that only provide benefits to people who meet strict financial standards. Those standards include severe limitations on the amount of savings and other assets an applicant can own or access.
A legal arrangement called a “trust” can help people become eligible for needs-based programs. Assets held in special forms of trust may be disregarded by the benefit program while still being available to be used enhance the quality of the beneficiary’s life and achieve other planning goals.
Elder law attorneys frequently create trusts that allow their clients to become eligible for Medicaid benefits that help pay for long term care costs. Medicaid regulations define a trust as an arrangement in which a grantor transfers property to a trustee with the intention that it be held, managed, or administered by the trustee for the benefit of the grantor or others.
While the focus of a trust may be on establishing and/or maintaining Medicaid eligibility, the lawyer involved in drafting or administering the trust must be aware of the trust’s impact on many other benefit programs that may be available to an older or disabled beneficiary.
Trusts raise many complex issues. Some trusts may disqualify a beneficiary from Medicaid while other trusts are non-disqualifying. The funding of some forms of trust may be treated as a transfer of assets and result in ineligibility for benefits. Trusts also vary in regard to the extent to which they are subject to eventual reimbursement claims by the state Medicaid agency.
This is not simple planning. Consumers should seek the advice of a lawyer who has an in-depth working knowledge of the legal issues involved with the trust and who is licensed to practice in the relevant state.
Special Needs Trusts
There are dozens of different types of trust. The terms “special needs trust” and “supplemental needs trust” are generally used to refer to a trust whose funds are deemed to be “unavailable” for purposes of means-tested public benefit programs like SSI and Medicaid. This type of trust is designed to complement rather than replace public benefit supports that are available to the beneficiary. Thus, it is a "supplemental" trust rather than a "support" trust.
There are three basic varieties of special needs trust commonly used in Pennsylvania:
1. Common-law trusts, also sometimes referred to as “third-party trusts” and “discretionary special needs trusts,” are created by someone other than the public benefit beneficiary. Since these trusts were not created by the individual seeking benefits, many harsh Medicaid trust provisions of do not apply. This type of trust is frequently a testamentary (created by Will) trust to provide for a disabled child or other beneficiary of the deceased’s estate.
2. Self-funded special needs trusts (also known as (d)(4)(A) trusts and as payback trusts) are created under federal Medicaid law [42 U.S.C. § 1396p(d)(4)(A)]. These trusts are created from the funds of the disabled beneficiary and require payback to the state for Medical Assistance benefits.
3. Self-funded pooled trusts (also known as (d)(4)(C) trusts) are created under 42 U.S.C.§ 1396p(d)(4)(C) from the funds of the disabled beneficiary, but must be managed by a nonprofit fiduciary as trustee. At the death of the disabled beneficiary, the residue is retained in trust for other disabled persons. Under state law [62 P.S. § 1414(b)(3)(iii)], Pennsylvania currently requires that a portion of the residue be available for payback to the state, but this Pennsylvania-specific payback provision has been held to be illegal by a federal district court. That case is currently on appeal.
In these days of budget concerns and welfare cut-backs no one should rely solely on the future availability of government benefit programs. The special needs trust can provide an extra margin of safety to ensure that its beneficiary has resources to meet whatever changing circumstances may arise in the future.
For More Information:
A Pennsylvania Guide to Special Needs Trusts, by Jeffrey A. Marshall
Federal Court Voids Restrictions on Pooled Trusts, by Jeffrey A. Marshall