Disability
Trusts and Medicaid
Bob Mason
Originally
published in Coastal Senior
(June 2007)
You may have heard that
Congress has imposed drastic
restrictions on long term
care assistance under
Medicaid. Don’t lose hope.
Plenty of options remain for
married couples, and many
remain for disabled
individuals and their
families.
The parents of a disabled
child must ensure that the
child will receive adequate
financial protection,
probably for the child's
entire lifetime, while at
the same time providing
equitably for other family
members. Maybe a parent is
worrying about her own
nursing home care but wants
to insure her assets can be
used for her disabled child.
In many cases access to
government entitlement
benefits -- whether
Supplemental Security
Income, state supplemental
assistance programs, or
Medicaid – is critical. How
does one remain eligible for
these valuable resources
without first becoming
impoverished?
An inheritance left directly
to a disabled child will
soon be gone. If a disabled
individual comes into a
“windfall”, such as a
personal injury settlement,
those assets, too, will
quickly disappear.
Sadly, many parents (with
inadequate or no advice)
simply leave everything to
the “non-disabled” children
with the hope those children
will “look after” their
disabled sibling.
Unfortunately, greed,
divorce, lawsuits or
carelessness can throw this
plan awry.
A "special needs trust"
might be a great
alternative. Because someone
other than the beneficiary
provides the trust assets,
and the trust holds the
assets for "supplemental
needs" only, the trust
should not affect the
disabled individual's
eligibility for entitlement
benefits or be accessible to
the individual's creditors,
including the government.
A "special needs trust" will
supplement, not
reduce or replace,
entitlement benefits that
may be available to the
disabled individual. If no
benefits are available, the
trust assets stand ready to
help. If the available
benefits do not provide
adequately for the
beneficiary's needs, the
trust assets will fill in
that gap. Even if the
available benefits
adequately cover material
needs, the trust assets may
be used to enrich the
beneficiary's quality of
life without jeopardizing
the much-needed benefits.
Finally, to the extent that
the assets are not used
during the beneficiary's
lifetime, they may pass to
other family members.
What happens, however, if
the disabled individual has
assets, but these are
inadequate to meet his or
her needs? What if a will or
a trust names the individual
without providing for a
trust in the event of
disability? And what if the
individual is about to
receive a settlement or
award in a personal injury
lawsuit?
By placing his or her
property in another kind of
special needs trust, a
so-called "OBRA '93 Trust"
or "payback" trust, the
individual will remain
eligible for many important
benefits, including
Medicaid. The catch is that
upon the beneficiary's
death, the Medicaid benefits
must be repaid, with only
the balance passing to other
family members. During the
individual's lifetime,
however, the difference
between an OBRA '93 Trust
and no trust can be
the difference between
having training and
educational opportunities, a
computer, music, regular
outings and a vacation, and
living a life of poverty or
dependency.
The requirements of an OBRA
'93 Trust are simple. It
must be established for the
lifetime benefit of someone
under age 65 who is disabled
or blind. It must also
provide for pay-back
of Medicaid benefits paid by
the state. In addition, only
parents, grandparents,
courts, or "guardians", not
the disabled individual
directly, may establish a
pay-back trust.
When deciding to establish
an OBRA '93 trust, the
disabled beneficiary's
specific needs and the
effect of the trust on the
individual's benefits must
be taken into account. Also,
in the context of a personal
injury settlement, many
common settlement options
(such as annuities) may
render an OBRA ’93 trust
impossible. Because of this,
early planning is a must
when damages for a personal
injury are involved.
For the trusts I’ve just
described, administration
can be difficult. Also, for
people over 65, or for
people with no parents,
grandparents, or guardians
available to establish a
trust, these trusts may be
unavailable. In that case,
a community or pooled trust
may be the answer. They work
very much like pay-back
trusts, but are administered
by non-profit
community-based trustees and
are “pooled” with the trusts
of other disabled
beneficiaries. When the
beneficiary dies, the assets
either “pay-back” Medicaid
or can be retained in the
trust to provide for other
beneficiaries in the
community.
This is an exceedingly
complex area of the law.
I’ve tried to simplify it.
Whatever you do, get good
advice!
