MEDICAID BASICS AFTER DEFICIT REDUCTION ACT: Part III

This is a multipart series that will delve into the whacky world of Medicaid nursing home benefits after the Deficit Reduction Act. I don't know how many installments we will have . . . enough to get the job done.

A Reminder From The Last Installment

The Medicaid trust rules are extremely complex. Please do not rely upon this simple explanation for a definitive answer.

Was the trust was funded by the applicant or the applicant's spouse?

General Rule:  If an applicant is the beneficiary of a trust funded with his assets or the assets his spouse, the trust will be countable to the applicant. Of course, a number of significant exceptions apply.

Exception 1: Was the trust funded by a spouse's will? If so, and if the trust was properly designed as a discretionary trust (meaning the trustee is not legally obligated to distribute anything at all to the beneficiary), the assets in the trust will not be countable.

Exception 2: If not funded by will, does the trust allow the trustee to distribute anything from any part of the trust under any conceivable circumstance? If the answer is "no" the trust is not countable. If the answer is "yes" with respect to any part of the trust, that part of the trust is countable.

A trust may have different parts. Part A or Part B. Perhaps parts for different beneficiaries. Importantly, most trusts have "income" and "principal". A trust may prohibit distributions of principal under any circumstances but allow or require distributions of income. The "principal" would not be "countable" and the income, of course, would be.

Really Important Note: If an applicant or her spouse sets up an "Exception 2" trust that prohibits any distributions to the applicant or the spouse, it may not be a countable asset, but the trust certainly will raise transfer of assets concerns when it is established, especially if the trust was set up within the last five years.

Exception 3: If the trust was funded with the applicant's own assets and the applicant is under age 65 at the time the trust is set up, then the trust might qualify as a "self-settled special needs trust". More on those later. See also my further explanation of special needs trusts on the Mason Law website by clicking HERE.

Was The Trust Funded By Someone Else?

If a trust set up by someone other than the applicant or her spouse, will the assets be counted? Answer: It depends.

General Rule: If a trust set up by someone other than the applicant or her spouse requires the trustee to distribute assets under certain circumstances, the assets that are required to be distributed will be countable if those circumstances occur.

Common Example: Mom sets up a trust for daughter that requires assets to be distributed for the "health, education and maintenance" of the daughter. The trusts assets will be countable if daughter needs to go into a nursing home.

Common Example: If the trust says my trustee may not distribute to daughter in any manner that would disqualify her for nursing home benefits under Medicaid, but may distribute for other reasons, the trust assets will not be counted. These types of trusts are commonly referred to as "third party special needs trust". See also my further explanation of special needs trusts on the Mason Law website by clicking HERE.

Next Issue . . .

We'll wind up the discussion of Medicaid asset rules for a married couple in the next issue.

We have previously discussed filing for disability benefits, determining onset date, eligibility date, and insured status requirements. Now let's discuss disability appeals.

You can appeal any adverse decision issued by Social Security. But you have to follow the process.

Individuals have the right to be represented during both the initial application and all appeal processes. However, most individuals proceed through the initial application and first appeal without representation.

After the initial application, there are 4 basic levels of appeal. Time limits on filing appeals make it imperative that individuals pursue their appeals as soon as possible after receipt of the adverse decision. Social Security will always issue a written decision on both the initial application and any subsequent appeal. Most initial disability decisions are issued within 3 to 5 months, but can take longer. Individuals have only 60 days to appeal the decision.

The first level of appeal is a reconsideration. The reconsideration is supposed to be a complete review of the claim by someone who did not take part in the first decision. Unfortunately, the truth is that many (however, not all) reconsiderations merely appear to be "rubber stamp" affirmations of the initial decision. Most reconsiderations involve a review of the claims file without the need for the applicant to be present. Average processing time for reconsiderations is 2 to 3 months. Again, adverse decisions are appealable within 60 days.

The second appeal is a "hearing" before an Administrative Law Judge (ALJ) who had no part in the initial decision or the reconsideration. The hearing is usually held within 75 miles of the applicant's home. The applicant and a representative may go to the hearing and explain the case in person to the Administrative Law Judge. The ALJ will question the applicant and any witnesses. It is important to have all medical information submitted as soon as possible so that the ALJ can consider all relevant evidence. It is almost always in the client's interest to attend the hearing. Currently, time frames on hearings are ranging upwards of 24 to 30 months. Recent applications decided under the "electronic folder" guidelines result in faster hearings, but are still taking 12 to 15 months to get to the ALJ for a decision. Again, a written decision will be issued with a standard 60 day appeal period. I highly recommend being represented at this level of appeal, as the representative knows how to present the information that the ALJ is looking for to be able to approve the case.

The final administrative appeal (prior to going to Federal Court) is an Appeals Council Review. The Appeals Council reviews appeals of ALJ decisions from the entire United States. The Council's headquarters are in Arlington, Virginia. There are no appearances before the Appeals Council; it is entirely a paper appeal. The Appeals Council looks at all requests for review, but it may deny a request if it believes the hearing decision was correct. If the Appeals Council decides to review the case, it will either decide the case itself, or return it to an ALJ for further review. Sending the case back to the ALJ is called a "remand". Again, time frames vary, but 6 months for the Appeals Council decision is not unusual. Written decisions are issued in every case.

If the Appeals Council decision is unfavorable, the last step of appeal is to Federal District Court. This requires the services of an attorney, resulting in a case being opened in the Federal Court system. Very few applicants take their case this far due to the prohibitive cost factors. Again, the time frames extend for many months into years for the case to be heard and a decision issued.

A really good website I've come across by a representative is called Social Security Disability Benefits: How to Apply, How to Win. I have reviewed a lot of the information on this website and it is quite accurate in the depictions of the appeals processes, and the nightmare that individuals have to endure to pursue benefits. While the web-site owner is trying to sell a book and video (neither of which I have personally previewed, and therefore cannot necessarily recommend) the content of the web-site is both educational and informative.

[The site that Warren references is packed full of useful information for anyone facing the disability application and appeals process, but the author of that site also urges that the difference between "going it alone" and having capable, experienced representation is the difference between a 65% national average success rate and a 96% success rate.  Editor]