Procrastinators’ Programs SM

Estate Planning – Avoiding Disciplinary Action And Potential Malpractice Claims by Using Special Needs Trusts When Representing Clients with Disabilities

Joel A. Mendler Baldwin Haspel Burke & Mayer

Course Number: 0200141229 1 Hour of CLE

December 29, 2014 3:40 – 4:40 p.m.

AVOIDING DISCIPLINARY ACTION AND POTENTIAL MALPRACTICE CLAIMS BY USING SPECIAL NEEDS TRUSTS WHEN REPRESENTING CLIENTS WITH DISABILITIES

By

JOEL A. MENDLER Baldwin Haspel Burke & Mayer, LLC 3600 Energy Centre 1100 Poydras Street New Orleans, Louisiana 70163-3600 (504) 585-7885

I. Ethical and Malpractice Exposure

A. If you represent a person with a severe disability, whether the disability is physical or mental or parents who may have a child with a permanent disability, you need to consider what type of governmental benefits the client or child is currently receiving or likely to receive in the future. If those governmental benefits are means-tested (that is, eligibility requires limited income and/or resources), then you need to consider and discuss the availability and advisability of a (“SNT”) to preserve such benefits in light of any funds already owned by the person with a disability or due to be received by virtue of a potential , or worker’s compensation recovery or child or spousal support award. If a SNT is appropriate but your client rejects a SNT, you need to document in a letter to your client that you discussed the SNT and the fact that your client rejected it. If your client accepts the idea of a SNT, then you must be competent in drafting the document and, if not, obtain your client’s approval to associate another lawyer who specializes in such trusts. There have been numerous disciplinary complaints and malpractice suits brought across the country and it is pretty much a “slam dunk” for the person with a disability to demonstrate that the damages suffered by failing to recommend and utilize a SNT are the lifetime of governmental benefits which otherwise would have been available and/or the amount of the recovery which had to be dissipated by your client to private pay the cost of medical care.

B. Some Ethical Considerations

1. Rules 1.4(a)(2) and 1.4(b) of Professional Conduct require a lawyer to reasonably consult with a client about the means by which the

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client’s objectives are to be accomplished and to give the client sufficient information to participate intelligently in decisions concerning the objectives of the representation and the means by which they are to be pursued.

2. Rule 1.1 requires a lawyer to provide “competent” representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. Model Rule Comments provide that in determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question . . . and whether it is feasible to refer the matter to or associate or consult with, a lawyer of established competence in the field in question.

3. Rule 1.14 addresses the lawyer’s obligations in representing clients with diminished capacity due to minority, mental impairment or for some other reason. As far as reasonable, the attorney should maintain a normal attorney-client relationship, which includes the duties of loyalty and confidentiality. However, if the lawyer reasonably believes that the client has diminished capacity, is at the risk of substantial financial or other harm unless action is taken and the client cannot adequately act in the client’s own interest, the lawyer may take reasonably necessary protective action to protect the client and, in appropriate cases, seek the appointment of a fiduciary (which includes an agent or ), curator or tutor, to protect the client’s interests.

C. Estate Lawyers

1. You prepared a Will for a deceased parent who has a child with a permanent disability. The child’s legacy was left in trust for the child’s benefit for life. The trust provides that the Trustee shall distribute income and principal to provide for the child’s health, educational, medical and other support needs (“HEMS”). Distribution standard makes child ineligible for means-tested governmental benefits (as discussed below). Alternatively, you prepare a Will with a trust as of such child’s forced share of the parent’s estate which requires that all income attributable to the forced share be distributed to the monthly based upon prior law which required that income from legitime in trust had to be distributed no less than annually. See Rajcau v. Garvey, 807 N.E.2d 725 (Ill. App. 2004) (malpractice claim for two disabled children on

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public benefits against attorney for failure to create SNT. Attorneys pleaded statute of limitations but court determined that due to attorneys’ fraudulent concealment of their failure to create SNTs, the statute of limitations was tolled. After the plaintiffs’ claims were reinstated, the defendant attorneys settled for an undisclosed amount.)

2. You prepare a Will leaving substantial assets outright to the client’s sister who resides or soon likely will reside in a nursing home and whose cost of care is or would be covered by Medicaid. Board of Overseers of the Bar v. Brown, 200 Me Lexis 190 (10/25/2002) (court suspends attorney’s law license for failure to create a special needs trust and for other reasons).

3. You prepared Wills for a couple in which they leave their estates to each other. Subsequently, wife advised you that her husband now is in a nursing home covered by Medicaid. Wife dies first. Inheritance by husband makes him ineligible for Medicaid covering his nursing home costs.

4. You prepare a Will for a parent or grandparent of a child with a disability leaving assets to an existing first-party d4A SNT with a Medicaid payback provision (discussed below).

5. You prepare a Will for a client who leaves $50,000 to his niece. The niece has no disability at the time. However, upon the client’s death, the niece was disabled and loses means-tested governmental benefits. Will did not contain any contingency provision if a beneficiary was disabled at the ’s death.

D. Trial Attorneys

1. You obtain a recovery in a personal injury or worker’s compensation case for a client who would be considered “disabled” for Social Security purposes and who is or would be eligible for SSI and/or Medicaid. You provide the client with a generous lump sum or structured settlement as a result of your legal efforts.

a. Grillo v. Petiete, et al., Cause No. 96-145090-92 and Grillo v. Henry, Cause No. 96-167943 (96th Dist. Ct., Tarrant County, Texas) (Grillo settled personal injury claim for a lump sum based upon advice of her personal injury attorney. Sued the attorney and her guardian ad litem for malpractice. She alleged that they failed to consult competent experts

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concerning a structured settlement and failed to preserve her eligibility for SSI and Medicaid. Case settled by all defendants for a combined $4.1 million).

b. Dept. of Social Services v. Saunders, 724 A.2d 1093, 1105 (Conn. 1999) (conservator settling personal injury action sought to create a SNT to preserve wife’s Medicaid eligibility. State objected. Court indicated that the failure of the court and conservator to create a SNT “could be deemed to be in dereliction of their duties” to the person with a disability).

c. French v. Glorioso, 94 S.W.3d 739 (Tex. Ct. App. 2002) (French shot during a robbery attempt in New Orleans parking garage which rendered her a quadriplegic. Suit against parking garage for negligent security settled and French consulted a Texas attorney about establishing a SNT. Attorney advised her that she would lose her Medicaid since the settlement funds were not deposited into a SNT but the trial lawyer’s trust account. French sued her trial attorney for malpractice. There appeared to be some factual dispute over what, if anything, the trial attorney had or had not recommended. The case was not decided upon the merits but a jurisdictional issue).

d. January 17, 2001 letter from the Louisiana Attorney Disciplinary Board. (Appendix “A”). Attorney represented a 5 year old minor in personal injury settlement. Attorney settled case with a structured settlement which would pay a lump sum amount when the minor attained age 18 and an annuity of $1,500 per month thereafter. The minor had been receiving public benefits before the settlement. Twelve years later, as the minor was about to turn age 18, child’s parents filed ethics complaint alleging the receipt of the settlement would result in the loss of SSI/Medicaid. The Louisiana Deputy Disciplinary Counsel wrote:

“Need-based services are obviously adversely impacted by the payments to be made under the structured settlement. It appears most probable that [the client] will be substantially worse off given the loss of need-based governmental services (once the structured settlement payments) are received. The loss of need-based

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services due to income under the settlement was clearly forseeable at the time of settlement. Apparently Mr. ______did not consider or advise his client concerning this forseeable adverse consequence of the settlement . . .. These concerns raise serious questions under the Rules of Professional Conduct.”

La. Code Civ. Proc. art. 4521 allows a court which renders a monetary judgment or a judgment of possession in favor of a minor to place the funds in trust. La. Code Civ. Proc. art. 4272C(2)(d) provides that a court, in approving a structured settlement for a minor, should consider the impact on governmental benefits.

2. You obtain a recovery in a personal injury or worker’s compensation case and create the appropriate Medicare Set-Aside arrangement (MSA) for a person who is or would otherwise also be eligible for SSI and/or Medicaid but any excess over the MSA is paid or payable directly to the client or the client’s legal representative.

3. Your client has a disability and is or would be entitled to SSI and/or Medicaid. You obtain a recovery in a lawsuit (not necessarily involving a personal injury to the client) and deliver the net proceeds outright to the client.

E. Family Lawyers

1. You negotiate a child support settlement for a child with a disability receiving SSI and/or Medicaid payable to the custodial parent (child support payments reduce SSI benefits dollar for dollar, but only 2/3 of child support payments are counted while the child is under age 18).

2. You negotiate a child support agreement for a child with an intellectual disability which extends beyond age 18. The child currently does not receive SSI/Medicaid due to the “deeming” of parental income and/or resources available to the minor, but such deeming ceases at age 18 even if the child continues to live with a parent. Alternatively, once the child attains 18 and you represent the parent paying support, you fail to advise about the possibility of seeking court approval to reduce such support due to a change of circumstances and possible creation of a SNT. See generally J.B. v. W.B., 73 A3.d 405,420 (N.J. 2013) (non-exhaustive guidelines for

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court to consider in modifying a previously negotiated financial support agreement and creation of a SNT).

3. You negotiate a spousal support and/or property settlement in favor of a spouse with a disability who is or may be eligible to receive SSI and/or Medicaid.

F. Legal Aid Lawyers

1. You settle a discrimination case resulting in payments to a client with a disability who is or may be eligible to receive means-tested governmental benefits.

II. Overview of Governmental Benefits

A. A client with severe disabilities may be eligible for local, state and federal benefits based upon his or her disability. Likewise, a qualified elderly person may be entitled to long-term care services paid by the government. Some governmental benefits, such as Social Security, Social Security Disability Income (“SSDI”) and Medicare are “entitlement” programs and are not dependent upon financial need. Other benefits, such as SSI, Medicaid, HUD housing and SNAP, are a function of financial need and basically require that the recipient be “poor”. Oftentimes, the client does not know which Social Security or medical benefits he/she is receiving, so it is important for the lawyer to verify exact benefits.

Basic Income Maintenance Health Care Coverage Social Security Medicare (includes SSDI) (Title XVIII) Supplemental Security Income (SSI) Medicaid (Title XVI) (Title XIX)

B. Benefits Not Based on Financial Need

1. Social Security Disability Income (SSDI or SSD).

a. Benefits payable before retirement age to an individual (or individual’s representative) who contributed to Social Security System and who is disabled.

(1) Suffers a severe, medically determinable physical or mental impairment which has or is expected to last for one year or to result in death; and

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(2) The impairment makes the individual unable to engage in “substantial gainful activity” (SGA) for a period of at least 12 months. In 2015, the SGA earned income limit is $1,090 a month for non-blind and $1,820 a month for blind.

b. Under certain circumstances, a worker’s spouse or child may be entitled to benefits based upon the worker’s record.

(1) A minor child (with or without a disability) who is dependent upon a Social Security eligible parent may be entitled to a Child’s Benefit (CB) payable to age 18 (or age 19 if a full time elementary or secondary school student).

(2) An unmarried child who has a recognized disability which occurred before age 22 may receive a Disabled Adult Child Benefit (DAC) if the parent is receiving Social Security disability or retirement benefits or dies.

2. Medicare

a. In addition to persons age 65 or older who have paid into the system, SSDI beneficiaries are entitled to Part A Medicare after 24 months of disability (actually 29 months since no benefits are payable for the first 5 months of being disabled, except as to CB benefits). No waiting period for people on kidney dialysis and 1 month waiting period for persons with ALS.

b. Part A covers inpatient hospital services, skilled nursing facility, extended care, home health services and hospice services, subject to deductibles. Medicare pays for nursing home care up to 100 days with co-pay after 20 days if the stay commences within 30 days of discharge from a hospital where the patient was admitted for at least 3 days.

c. Part B is optional and pays for physicians and certain outpatient services.

C. Benefits Based Upon Financial Need

1. Supplemental Security Income (SSI) (42 U.S.C. § 1831, et seq.; 20 C.F.R. § 416.101, et seq.)

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a. The program’s purpose is to provide financial aid to blind or individuals with a disability (or their representative payee) whose income and countable resources do not allow them to meet the costs of food and shelter. Unlike Social Security or SSDI, SSI is not based upon a person’s employment record or a person’s relationship to an insured worker. SSI is a means- tested program with financial eligibility requirements, including limited income and countable resources.

b. An SSI recipient or his representative payee is paid a flat monthly benefit (maximum of $733 per month for unmarried individuals and $1,100 per month for a couple in 2015), reduced by the amount of non-excludable “income” which the recipient receives. 42 U.S.C. § 1382(b).

c. The SSI monthly benefit is reduced if the individual with the disability receives earned income, unearned income or certain “in kind” benefits from others (including trusts) during the month for food and/or shelter. See VI below.

UNEARNED INCOME EARNED INCOME IN-KIND SUPPORT AND MAINTENANCE Includes gifts, payments Wages, royalties, net Actual receipt of food or from annuities and earnings from self- shelter or something that pension, alimony and employment can be used to get one of support payments, rents, these etc. (but not interest or dividends per 20 C.F.R.§416.1124). Reduces benefits dollar Reduces benefits one Reduces benefits dollar for dollar after the first dollar for every two for dollar up to a $20 dollars after the first $65 maximum of $240 in earned monthly 2014.

d. A person may receive both SSDI and SSI if the SSDI is less than the maximum SSI benefit. If, as a result of cost of living increases to SSDI, an SSI recipient no longer qualifies for SSI, he/she still may be eligible for continuing Medicaid coverage under the so-called “Pickle Amendment.” Alternatively, a child with a disability, age 18 or over, who qualifies for Social Security benefits in excess of the SSI benefit amount by virtue of his parents’ earnings, may requalify for Extended Medicaid after losing SSI-linked

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Medicaid under the federally mandated Disabled Adult Children’s (“DAC”) program. 42 U.S.C. § 1396v(a)(2)(D) and 42 U.S.C. § 1383c(c); La. Medicaid Manual, Eligibility, Secs. H-610.1 and 620.1 (hereinafter “La. Manual”).

2. Medicaid (42 U.S.C. § 1396; 42 C.F.R., §§ 430, 431.1 and 435.1)

a. The program’s purpose is to provide a safety net to pay for necessary medical and long-term services and support (“LTSS”) for those eligible individuals whose income and/or countable resources do not allow them to meet the costs of their medical needs. With limited coverage under Medicare and few affordable options in the private market, Medicaid continues to be the primary payer for a range of institutional and community based LTSS for persons with disabilities needing assistance with daily self-care tasks. Medicaid is administered by states within broad federal rules and financed jointly by states and the federal government. In 2012, Medicaid outlays for institutional and community- based LTSS totaled almost $148 billion, accounting for 30% of total Medicaid expenditures.

b. Louisiana has a variety of Medicaid programs providing for the healthcare needs of its citizens.

(1) Regular Medicaid (pays for doctors, hospitals, some drugs and mental health), including Louisiana Children’s Health Insurance Program (LaChip). Eligibility for most of these programs is based upon the applicant/recipient having limited modified adjusted gross income (MAGI determination), and is not based upon limited resources. See generally La. Manual, Section H.

(2) Long-Term Services and Supports (“LTSS” Medicaid)

(a) Nursing homes and mental health facilities

(b) Home and Community Based Waiver Services (“HCBS”) provided in a variety of settings, such as in one’s home, a group home or apartment in the community, including:

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(i) Adult Day Health Care Waiver (“ADHC”).

(ii) Community Choices Waivers (“CCW”).

(iii) New Opportunities Waivers (“NOW”).

(iv) Children’s Choice Waivers.

(v) Residential Options Waivers (“ROW”).

(vi) Support Waivers (“SW”).

(vii) Coordinated System of Care-Severely Emotionally Disturbed Waiver (“CSOC- SED”).

States are required to cover nursing facility benefits, while coverage of most HCBS is optional. Over the last 20 years, there has been a shift toward serving more people in home and community-based settings rather than in institutions, in part to the growth of beneficiary preferences, lower costs and states’ obligations under the Supreme Court’s Olmstead decision which found that the unjustified institutionalization of persons with disabilities violated the Americans with Disabilities Act. However, in Louisiana many HCBS programs have long waiting lists.

(c) Medicaid recipients generally fall into two categories: the “categorically needy,” which in all but 13 states automatically includes those receiving any amount of SSI, and the “medically needy”, which is an optional program states may elect to cover, such as institutionalized persons with disabilities and home and community-based waiver participants under certain income limits. In Louisiana, if an individual qualifies for any SSI (even $1), the individual automatically qualifies for Medicaid (“SSI-linked Medicaid”). Thus, SSI eligibility is the main pathway for Regular Medicaid and HCBS, although there are a myriad of other Medicaid sponsored programs which have only a MAGI income test for determining eligibility. An individual receiving both SSDI and SSI may be eligible for both

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Medicare and Medicaid. As of 2010, over 9.6 million beneficiaries comprising seniors and younger persons with disabilities –known as “dual eligibles” - were enrolled in both Medicaid and Medicare, with Medicaid paying for the majority of their LTSS.

3. Federal Assisted Housing (HUD Section 8 rental assistance).

4. Supplemental Nutritional Assistance Program (“SNAP”) [7 U.S.C. § 2014(g); 7 C.F.R. § 273.8(e)(8). See http://dss.louisiana.gov – click “Learn About Food Stamps”]

5. Veterans Benefits (based upon “need”).

D. Financial eligibility requirements for SSI and Medicaid

1. In order to be eligible for SSI and SSI-linked Medicaid benefits, the individual must pass a “status” test to be determined “disabled” and also must demonstrate that he/she is poor by passing three financial tests:

a. Income test

b. Resource test

c. Transfer of Asset Penalty test.

2. Income Test.

a. The 2014 monthly net income limit for SSI for an unmarried individual who is aged, blind or disabled is $733 and $1,100 of combined income for married applicants, subject to certain disregards. Until a child with a disability reaches age 18, the income of an “ineligible” parent with whom the child lives generally is “deemed” to be available to the child and is counted in determining the child’s eligibility under the income test. See POMS SI 1320.700. Thus, due to parental deeming rules, many minors with a disability will not qualify for SSI and SSI-linked Medicaid. After age 18, parental income deeming ceases, even if the child with a disability continues to live with the parent, but food and shelter in-kind support and maintenance (“ISM”) from the parent may reduce the child’s SSI benefit.

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b. The income limit for Medicaid varies depending on the status of the applicant and the services covered. For institutionalized individuals (including nursing home residents), the monthly income limit in 2015 is $2,199 (three times the maximum SSI monthly benefit limit). However, qualified individuals with excess income requiring LTSS Medicaid benefits can qualify under Louisiana’s Medically Needy program and maintain Medicaid eligibility.

3. Resource Test.

a. Generally, the recipient of SSI and/or SSI-linked or LTSS Medicaid cannot have “countable” resources in excess of $2,000 ($3,000 for a married individual). A “countable resource” is cash, liquid assets or any real or personal property that is “available” to the individual to provide for basic necessities (food and shelter) under SSI and medical care under Medicaid. 42 U.S.C. § 1396a(a)(17)(B), 20 C.F.R. § 416.1202; La. Manual, Sec. I-1633. Until a child with a disability reaches age 18, like income, the parents’ resources generally are “deemed” to be available to the child and are counted in determining the child’s eligibility for SSI under the resource test. The allocation of part of a disabled child’s personal injury recovery to parents for their derivative claims will implicate the deeming rules if the child is under age 18, even where the child’s share is placed in a noncountable special needs trust. If the parent of the minor receives a structured settlement annuity which produces income below the SSI “income” limitations for deeming, SSA nevertheless may treat the structured settlement as a deemed “resource” of the parent on the theory that the annuity could be “cashed in” or commuted pursuant to state and federal law and thus be converted to a countable, liquid resource pursuant to 20 C.F.R. § 416.1201 or, alternatively, SSA could argue that there are companies which will purchase a right to future annuity payments for a lump sum, thus implicating the resource deeming rules.

b. Certain property is considered a “non-countable resource,” such as:

(1) Principal residence. SSI (and thus, SSI-linked Medicaid) does not count home equity. However, for LTSS nursing home vendor payments, the Medicaid

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applicant/recipient must demonstrate an intent to return to the home. Placing the home on the market for sale vitiates any “intent to return”. Individuals whose equity interest in the home exceeds certain limits ($552,000 in 2015) are ineligible for LTSS Medicaid services and benefits (including HCBS) unless the individual’s spouse, child under 21 or child who is blind or permanently and totally disabled resides in the home. These exceptions do not apply to HCBS. La. Manual, Sec. I-1630.

(2) Household goods and personal effects, other than held as an investment or collectibles.

(3) One vehicle, regardless of value, if it is used for transportation for the individual with a disability or a member of the individual’s household. 20 C.F.R. § 416.1218. If the recipient owns more than one vehicle, the exclusion applies to the car with the greater equity value, regardless of which car is actually used.

(4) Cash surrender value of life insurance if all policies have an aggregate face value $1,500 or less ($10,000 or less for certain Medicaid including LTSS). If the face value exceeds $1,500, then the entire cash value is a countable resource. Term life insurance and burial insurance are not counted in determining aggregate face value of insurance. 20 C.F.R. § 416.1230.

(5) Prepaid funeral costs and up to $1,500 in a burial plot. Also the cash value of a burial policy with a face value of $1,500 or less. May be $10,000 or less for certain Medicaid programs.

(6) Retroactive SSI and Title II benefits excluded for up to nine months.

See La. Manual, Sec. I-1630 for countable and non- countable resources.

4. Transfer of Asset Penalty Test

a. Congress enacted several laws to discourage an individual (or the individual’s spouse) from transferring assets to others in

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order to meet the income and resource tests of SSI and Medicaid. These laws do not prevent such transfers, but merely trigger a period of ineligibility for such benefits.

b. The failure to accept or access an inheritance (including forced or marital portions), pension, personal injury recovery or failure to enforce alimony or child support obligations will trigger the penalty period, although there is some flexibility in allocating personal injury recoveries, in part, to other family members who have suffered damages as a result of the to the individual with a disability. HCFA Transmittal No. 64, Sec. 3257.B.3 (11/94).

c. Except for transfers between spouses, to certain exempt individuals and to certain exempt trusts, any transfer of the individual’s (or spouse’s) assets for less than fair market value within 60 months of the individual’s application for Medicaid (“look-back” period) will trigger a period of ineligibility for LTSS (institutional Medicaid or home and community-based services), but not Regular Medicaid.

The number of months of Medicaid ineligibility is determined by taking the total, cumulative uncompensated value of the assets transferred during the look-back period and dividing by the state’s average monthly private pay nursing home charge at the time of the Medicaid application ($4,000 in Louisiana in 2014) to arrive at the number of months of ineligibility. 42 U.S.C. § 1396p(c). The penalty period begins to run from the later of the month of transfer or the first month in which the individual is eligible for Medicaid but for the application of the penalty period. EXAMPLE: A gifts $200,000 to her children. A subsequently enters a nursing home and would otherwise be qualified for Medicaid under the applicable income and resource tests. However, if the gift was made within 5 years, a transfer of assets penalty period of 50 months is triggered ($200,000 ÷ $4,000) commencing when A enters the nursing home assuming A would otherwise be eligible for Medicaid at that time. Query: Who pays for A's cost of care for the 50 months?

d. SSI also imposes a transfer of asset penalty for benefit eligibility purposes, except that the denominator of the fraction used to calculate the ineligibility period is the maximum SSI federal benefit rate plus the SSI state

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supplement applicable to the individual’s living arrangements, if any. 42 U.S.C. § 1382b(c). The resulting amount, computed to two decimal places, is rounded down to the nearest whole number to determine the number of months of the period of ineligibility. POMS SI 01150.111(A). However, unlike the LTSS Medicaid penalty provision, the maximum penalty that can be imposed by SSI is capped at 36 months, regardless of the amount transferred. The SSI penalty period begins on the first day of the month after the month the resource is transferred for less than fair market value, except for the transfer of which begins in the month received. POMS SI 01150.110(D)(1) and 01150.001(B)(5). The transfer of asset penalty provision does not apply to or prevent a parent who is not receiving SSI from transferring assets to others to avoid the SSI deeming rules generally applicable to his/her child under age 18 with a disability.

e. If the individual with a disability is receiving SSI-linked Medicaid (and not stand alone Medicaid) and is not institutionalized or receiving Medicaid waiver services, the less stringent SSI transfer of assets penalty provisions should apply. However, loss of SSI means loss of SSI-linked Regular Medicaid and the individual would have to try to qualify for another stand-alone Medicaid program until the SSI penalty period expires and the individual is reinstated on SSI.

f. Practitioners should include on their intake checklist a list of questions which indicate whether any of the statutory exceptions to the transfer of asset penalty might apply, including the child and sibling caregiver exceptions applicable to transfers of the family home as well as transfers of other assets to other individuals with a disability or a trust for their benefit.

III. The Problem . . . A Solution

A. While benefits available through Social Security may be quite small and may force the individual with a disability to live below the applicable poverty levels, medical benefits and services, such as under Regular and LTSS Medicaid, may be quite valuable and, in some cases, not even available in the private sector.

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B. The receipt of an inheritance (including forced portion or marital portion), gift, personal injury recovery, support payments or assets already in the name of the individual with a disability may disqualify such individual for means-tested governmental benefits, such as SSI and/or LTSS Medicaid, without proper planning. By maintaining eligibility for such programs, an entire system of state services for social programs, residential alternatives, rehabilitation, case management and health care can be preserved.

C. One solution is a trust.

1. There is probably no more fulfilling area of the practice of law than that involving the drafting, implementing and administering of Special or Supplemental Needs Trusts (SNTs). Every SNT case involves a person who has a need for the expertise and compassion of the drafting attorney. The attorney is presented with some heart- felt tale of insurmountable challenge, suffering, pain, injury and hardship and concomitantly, must make an effort to ameliorate or make it all the more bearable by creating a financial vehicle that will provide a mechanism to improve the quality of life for the beneficiary of the SNT. Zimring & Johns, “Special Needs Trusts and Ethics: For Attorneys, Who’s the Client Quickly Becomes Who’s on First”, NAELA Journal, Vol. 5, No. 1 (2009).

2. If the trust is drafted as a qualified Special Needs Trust (“SNT”), the assets of the trust, regardless of value, will not be counted in determining SSI and/or Medicaid eligibility and the funding of the trust will not implicate the transfer of asset penalty provisions.

a. A SNT is a trust created for the benefit of an individual with a disability or an elderly beneficiary which is designed to supplement rather than diminish means-tested public benefits such as SSI and/or Medicaid. However, a special or is not just a document. It is a process. The process is used to maximize both private and public resources for a beneficiary with a disability to improve upon the beneficiary’s quality of life. The SSI monthly benefit is hardly adequate for even food and shelter, let alone an individual’s “special needs.”

b. The term “special needs” is distinguished from “basic needs,” that is, the need for food, shelter and medical care, which public benefits such as SSI and Medicaid are intended to provide for minimally. Special needs encompass not only medical and health care services and products which may

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benefit an individual with a disability, but also a wide range of related services and “quality of life” options that may be tailored to the beneficiary’s particular circumstances and goals, as well as aspirations of family members, such as parents, for the beneficiary to live, thrive, and realize his/her potential in life.

c. Quality of Life options may include:

(1) Additional service providers, such as domestic and personal care assistants to aid the beneficiary with activities of daily living (dressing, grooming, toileting, mobility, etc.), additional therapies and elective surgeries;

(2) Attendant and respite care to the beneficiary’s primary caregiver;

(3) Customized, accessible van or other vehicle appropriate for the beneficiary’s circumstances and costs attendant thereto (gas, maintenance, insurance);

(4) Housing arrangements, including home purchase, additions, special modifications to accommodate the disability and renovations;

(5) Vacations and travel together with the cost of attendant care;

(6) Recreational activities;

(7) Dental care;

(8) Eyeglasses;

(9) Electric wheel chair;

(10) Assistive communications and other technologies;

(11) Computers/software/electronic equipment;

(12) Special education and training, including supplies and conferences;

(13) Entertainment, including concerts and sporting events;

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(14) TV (direct or cable), VCR, etc.;

(15) Household furnishings and appliances;

(16) Professional services for the beneficiary (investment, accounting, legal, advocacy, claims processing, life care planning);

(17) Pet procurement and maintenance;

(18) Help with housework;

(19) Reading materials; and

(20) Clothing, dry cleaning and laundry.

See In re Irrevocable Supplemental Needs Trust, No. A04-1018 (MN 12/14/2004) (unpublished opinion) (purchase of snowmobile, Brittney Spears concert tickets and trip to Disney World).

3. In addition to preserving eligibility for means-tested governmental benefits, SNTs, like other trusts, offer several advantages over other forms of personal and financial care alternatives, including:

a. Unlike an interdiction, there is no inquiry into the person’s competency. May be very important to the emotional needs of the family by avoiding the initial court proceeding and constant judicial and legal involvement in decisions affecting the person with the disability.

b. A carefully drafted trust instrument which grants sufficient discretion to a capable Trustee affords a significant degree of flexibility to assure the beneficiary’s needs will continue to be met, even in face of changing and perhaps unforeseen personal, social or legal conditions.

c. Persons with certain disabilities may not be competent to make a Will. A trust can provide distribution of principal to other beneficiaries, subject to certain limitations under Louisiana on shifting interests. For example, the child with a disability is named income beneficiary of the Trust with discretionary power in the Trustee to invade principal for his or her benefit. Upon the child’s death, the trust assets would be distributed to other beneficiaries, such as other children, thereby completely avoiding probate

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proceedings for the child with a disability. Although in Louisiana a forced heir must be the principal beneficiary as to his/her legitime, a shifting interest is permissible if the forced heir dies intestate and without descendants during the term of the trust. La. R.S. 9:1841 and 9:1973.

d. The trust could be designed as a “pot” trust for multiple children (disabled and non-disabled) with discretion granted to a non-beneficiary Trustee to “spray” non-legitime income and principal among the beneficiaries in the Trustee’s discretion or in accordance with standards. La. R.S. 9:1961.

e. Asset protection from creditors. A spendthrift provision in a third-party trust restraining both voluntary and involuntary transfer of the beneficiary’s interest generally protects assets while in the trust from claims of the beneficiary’s creditors, subject to some limited exceptions. La. R.S. 9:2005. However, the creditors of a beneficiary who transfers his/her own assets to a self-settled or first-party spendthrift Louisiana trust can seize the beneficiary’s interest in the trust, but such beneficiary may restrict his/her own voluntary alienation. La. R.S. 9:2002 and 2004(2); J.W. Operating Co. v. Olsen, 48,756-CA (La. App. 2d Cir. 2014).

f. Asset protection from predators.

g. Management of assets by others, including a professional Trustee.

D. Two Types of SNTs

1. Third-Party SNT

a. Created and funded by a third party with his/her funds, typically a parent or grandparent, for the benefit of a child or grandchild with a disability either during lifetime or by Will.

b. SNT may include other beneficiaries (e.g., child with disability is income beneficiary and other children are principal beneficiaries).

c. Many estate planners include SNT language in Wills and regular trusts for beneficiaries who are not disabled, particularly for young children, grandchildren or multi- generational (“dynasty”) trusts, to provide flexibility should a

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beneficiary become disabled between the date the Will and the testator’s death or during the term of the trust.

d. There is no federal statutory authority for third-party SNTs. However, as discussed below, if income or principal from the trust is considered “available” to the beneficiary with a disability, the beneficiary may be disqualified for means- tested governmental benefits.

2. Self-Settled or First-Party SNT

a. Created with assets already owned by the person with a disability (e.g., from savings, personal injury recovery, gifts, inherited property, support payments, retroactive governmental payments, income, etc.).

b. The federal statutory authority and requirements for a self- settled SNT are found at 42 U.S.C. § 1396p(d)(4) and 42 U.S.C. § 1382b. Trust must be for the sole benefit of the individual with a disability.

c. Two types of First-Party Trusts

(1) Under Age 65 Disability Trust (a/k/a “pd4A” or “d4A”) (discussed at V below).

(2) Pooled Asset Trust established and maintained by a non-profit association with separate accounts for each participant with a disability but with pooled investments. See, e.g., Alabama Family Trust at www.alabamafamilytrust.com. The type of trust may work well where the amount of assets do not justify the start-up costs and the ongoing administrative expense of a separate d4A SNT.

3. For a comparison of Third-Party and First-Party Trusts, See Appendix B.

IV. SNT Created with Assets of Others (“Third-Party” SNT).

A. Typically, these are testamentary trusts or inter vivos trusts which will be funded by a testamentary bequest or as the designated beneficiary of non- probate assets (life insurance, retirement benefits, IRAs, etc.), and which are created by a parent, grandparent or other family member for the benefit of a person with a disability receiving or likely to be eligible for SSI and/or

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Medicaid. The trust is funded with assets other than those already owned by the beneficiary with the disability.

B. A third-party SNT could involve:

1. A parent or grandparent leaving a bequest to a child or grandchild with a disability or a sibling leaving a bequest to a sibling with a disability.

2. The community spouse leaving a bequest in trust for the benefit of the institutionalized spouse (e.g., in a nursing home), as income beneficiary, subject to special needs provisions.

3. A child providing support for an aged parent leaving a bequest in trust or establishing an inter vivos trust for the parent, as income beneficiary, subject to special needs provisions.

C. Income or principal of a third party SNT will be countable only if it is “available” to the applicant or recipient. For SSI purposes (and thus SSI- linked Medicaid in Section 1634 states such as Louisiana), a third party trust will not be treated as a resource unless the individual has legal authority to revoke the trust and then use the funds to meet his/her food or shelter needs or if the individual can divert the use of the trust principal for his/her support and maintenance either under the terms of the trust agreement or state law. In determining “availability” in LTSS Medicaid cases, courts look to the terms of the trust (whether the trust contains a support standard and the extent of discretion given to the Trustee), the purpose of the trust as expressed in the trust instrument, and whether or not the beneficiary has a right to compel a distribution for food and shelter (SSI) or for support and medical care (Medicaid).

D. Unless extreme care is exercised in drafting SNTs, the trust income and/or assets may be treated as “available” to the beneficiary and thus counted in determining the financial eligibility of the beneficiary for means-tested governmental benefits, thus defeating the SNT’s primary purpose and giving rise to an ethical complaint grounded on lawyer’s competency or, worse, a malpractice suit.

1. Distribution standards may vary:

a. Mandatory Support Trust

b. Discretionary Support Trust

c. Purely

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d. Purely Discretionary Trust (with precatory language urging, but not requiring, the Trustee to make distributions not otherwise available from governmental assistance programs).

e. Special or Supplemental Needs Trust

f. Discretionary SNT (with ability to make distributions which will reduce governmental benefits if in the best interest of the beneficiary).

2. Inadvertent Trust Provisions

a. Crummey limited withdrawal provision to preserve annual gift exclusion for gifts to SNT.

b. Subchapter “S” QSST provisions requiring income distribution at least annually.

3. Selection of Trustee.

a. One of the most difficult decisions in drafting a SNT involves the selection of the Trustee and successor Trustee – someone who is capable of managing the trust assets and who also is willing and able to assume an active role in the provision of proper personal care for the beneficiary with a disability. A SNT can be a “high maintenance” trust since the Trustee cannot simply make periodic distributions to the beneficiary directly because the beneficiary may be incapable and/or such distributions would jeopardize means-tested governmental benefits. The selection of the wrong Trustee can be as disastrous as not having a trust at all. Inexperienced or conflicted can mismanage funds, spend on inappropriate items and violate the rules of vital public benefit programs. See Hardy v. Hardy, (Chancery Court of Delaware, C.A. No. 7531-VCP, 7/29/2014); In Re Matter of JP Morgan Chase Bank, N.S. et al. v. Marie H., 2012 N.Y. Slip. Op. 22387 (Sur. Ct. 12/31/2002); Sargent v. Sargent, No. PC 08-1429 (R.I. Super. 7/31/2009 and 4/15/2011); In re Goodness Trust, #08-7349 (R.I. Super. 5/14/2009). The majority of problems come from the selection of an inappropriate Trustee.

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(1) The beneficiary should not serve as Trustee under any circumstances or have the power to appoint himself/herself as Trustee.

(2) Are there family members who are capable and willing to assume this responsibility? Do they have the requisite understanding of their fiduciary responsibility solely to the trust beneficiary and of how to administer the trust to preserve means-tested governmental benefits under complex SSI/Medicaid rules? Would the appointment of a sibling as Trustee create animosity and friction between the Trustee and the beneficiary over money? How far can the estate/trust lawyer advocate when he/she knows that the family member proposed as Trustee is absolutely the wrong person to serve? See Jones v. ABC Ins. Co., et al., (La. App. 5th Cir. 2013)(summary judgment in favor of attorneys in legal malpractice action reversed where mother alleged failure to disclose an independent Trustee rather than mother would be required to serve as Trustee of SNT).

(3) Is there a professional advisor, such as an accountant, attorney or financial advisor, who can serve as Trustee? The non-family advisor becomes a surrogate parent, having to make decisions on investments and when and for what purposes distributions are going to be made from the SNT. Often this is a thankless job entailing a great deal of time and attention and perhaps controversy between the Trustee and the beneficiary or the beneficiary’s caregiver over the amount or appropriateness of distributions. See In re Hall, 329 P.3d 870 (Wash. 2014) (attorney suspended for ethical violations where he named himself as successor Trustee of SNT and successor executor of estate). Matter of Bigler, 986 N.Y.S.2d 139 (Sup. Ct. App. Div. 3/26/2014) and Matter of Pugliese, 982 N.Y.S.2d 509 (Sup. Ct. App. Div. 3/26/2014).

(4) What about a corporate Trustee? Sadly, few corporate Trustees are willing to manage assets under $100,000 - $250,000 or become involved in the beneficiary’s life as the family might wish. Furthermore, the corporate

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Trustee fees may not be economical for administration of smaller SNTs. However, the corporate Trustee may offer the advantages of expertise in the SNT area and governmental benefits and investment expertise. Although corporate Trustees are not mortal, they do get acquired by other financial institutions and there is a risk that trust services will be rendered from another city. Furthermore, there may be turnover in bank trust officers which may mean a new relationship with an individual who interprets the trust differently or becomes less generous or understanding than the predecessor. Some banks try to solve this problem through a "team" representation approach to provide continuity of services if turnover occurs.

(5) Co-Trustees (corporate and individual) and special allocation of Trustee responsibilities.

V. SNT Created With Assets of the Beneficiary with a Disability (“First-Party” or “Self-Settled” SNT)

A. This trust is created with assets already owned by beneficiary with a disability, such as from savings, gifts, inheritance, tort or worker’s compensation recovery, support payments, etc.

B. Generally, the transfer of assets already owned by an individual with a disability to a trust will not help in qualifying for or preserving Medicaid or SSI benefits.

1. The Omnibus Budget Reconciliation Act of 1993 (“ORBA ‘93”) and the Foster Care Independence Act of 1999 dramatically limited the ability to exclude assets already owned by individuals as a countable resource through trusts created by such individuals or their spouses, their legal representative, or by any person (including a court or administrative body) acting at the direction or upon the request of Medicaid or SSI-eligible individuals or their spouses. 42 U.S.C. §§ 1396p(d)(3)(B) and 1382b; La. Manual Sec. I-1720. A trust created by any of the aforesaid parties is considered an asset of the individual with a disability regardless of:

a. The purpose for which the trust is established;

b. Whether the Trustee has or exercises any discretion under the trust;

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c. Any restriction on when or whether distributions may be made from the trust; or

d. Any restrictions on the use of distributions from the trust.

2. If the individual’s assets are placed in a revocable trust:

a. The corpus of the trust is considered a resource available to the individual;

b. Payments of income and assets from the trust to or for the benefit of the individual are considered “income” for SSI and Medicaid purposes; and

c. Payments from the trust to others are considered transfers of assets subject to a 60 month look-back rule by Medicaid for LTSS or HCBS benefits or a 36-month look-back rule by SSI, requiring a computation of a transfer of asset penalty period of ineligibility.

3. If the individual’s assets are placed in an irrevocable trust:

a. Any corpus or income which could be paid or used for the individual’s benefit will be treated as an available resource;

b. Payments from the corpus or income actually made to or for the individual’s benefit are considered “income;” and

c. Other portions of the corpus or income payable to others are considered transfers of assets subject to a 60-month look-back rule by Medicaid for LTSS or HCBS benefits or the 36-month look-back rule by SSI as of the later of the date the trust is created or foreclosure of payment to the individual. 42 U.S.C. §1396p(d)(3)(B).

C. One statutory exception to the above self-settled trust rules is an under Age 65 Disability Trust (a/k/a “pd4A” or “d4A” or “Medicaid Payback” Trust) which meets the strict requirements of the statute. 42 U.S.C. §§ 1396p(d)(4)(A), 1382b(e)(1) and 1382b(e)(5); HCFA Transmittal No. 64, Sec. 3259.7A (11/94); POMS SI 01120.203(B)(1).

1. The assets of an individual with a disability (regardless of amount) in a d4A Trust will not be counted as a resource for eligibility purposes and the transfer of the individual’s assets to the d4A trust will not trigger a transfer of asset penalty for Medicaid and SSI.

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2. Requirements:

a. Assets of the Individual With a Disability: The trust must be funded with the legally assignable assets (income and/or resource) of the individual with a disability, but may contain assets of others.

b. Under Age 65: The individual must be under age 65 and disabled. Thus, an individual under age 65 could transfer all of his/her countable assets, regardless of amount, to a first- party SNT and meet the financial eligibility requirements for SSI or LTSS Medicaid, such as nursing home care.

c. Irrevocable

d. “Sole Beneficiary” Requirement: The individual with the disability must be the sole beneficiary of the SNT. Medicaid may construe the sole beneficiary requirement violated where the trust pays excessive fees, pays for family and friends to visit the beneficiary or permits family members to use trust assets free of charge (e.g., reside in the home owned by the trust rent-free or pay for a swimming pool allegedly for the beneficiary’s physical therapy but used extensively by other family members). See Hobbs v. Zenderman, 542 F.Supp. 1220 (N.M. 2008), aff’d on other grounds, 579 F.3d 1171 (10th Cir. 9/1/2009).

e. Medicaid Payback Provisions: The SNT must provide that upon the individual’s death (or earlier termination of the trust), the state (or states on a pro rata basis) will receive all amounts remaining in the trust, up to the cost of care provided by the state(s). For SSI and Medicaid eligibility purposes, it appears that the reimbursement must include Medicaid expenditures both before and after the establishment of the trust. POMS SI 01120.203(B)(1)(h); See Estate of Abraham XX v. State of N.Y., 900 N.E. 2d 136 (Ct. App. N.Y. 2008). Thus, it may not be appropriate (and even malpractice) to place the assets of a terminally ill or older client under age 65 with a short life expectancy into a d4A trust to qualify for Medicaid if Medicaid has paid substantial sums in the past, thereby subjecting the client’s assets to the Medicaid payback provision for lifetime benefits.

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NOTE: A third-party SNT is not required to contain a Medicaid payback provision. Therefore, parents, grandparents or other family members of the individual with a disability should not make gifts or bequests to a pre-existing d4A trust or a new d4A trust, but should use a third-party SNT. Likewise, drafters of estate plans for family members of the individual with a disability should not “pour-over” third-party assets into a preexisting first-party trust or designate the first-party trust as beneficiary of the family member’s nonprobate assets, such as life insurance retirement benefits or IRAs. Improper use of a d4A trust could result in the unnecessary repayment of Medicaid benefits to the state and a potential malpractice claim against the drafting attorney. Many inexperienced drafters of third-party trusts improperly reference 42 U.S.C. §1396 and/or include a specific Medicaid payback provision.

f. Establishment of the Trust: The trust must be “established” through the action of the individual’s parent, grandparent, legal guardian or a court, even though the beneficiary may have legal capacity and the trust is funded solely with the beneficiary’s own assets for his/her sole benefit. The beneficiary with the disability cannot “establish” the trust even if the beneficiary has legal capacity.

Under SSI guidelines, in the case of a d4A trust established through the action of a court, the creation of the trust must be required by a court order. “Approval” of a trust by a court is not sufficient. Therefore, in drafting court pleadings and the trust, avoid seeking court “approval” of the trust, or approval of the establishment of the trust, but rather have the trust be “established” by the court by either having the judge sign the trust (which is not usually possible) or have the court order another person (preferably other than the beneficiary, the beneficiary’s spouse or the beneficiary’s agent) to sign the trust as the nominal .

g. No Additions to Trust After 65: The exception continues to apply after the trust is created even though the beneficiary later attains age 65. However, the trust cannot be added to or

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otherwise augmented after age 65 or such additions will not be exempt resources for eligibility purposes.

(1) Additions or augmentations do not include interest, dividends or other earnings of the trust.

(2) If the trust contains the irrevocable assignment of the right to receive payments from an annuity (e.g., structured settlement annuity from a personal injury recovery) or support payments made when the trust beneficiary was under age 65, payments after age 65 will not disqualify the SNT.

VI. Administering SNTs

A. A perfectly drafted SNT (third party or self-settled) still can result in the loss of means-tested governmental benefits if the SNT is not properly administered. The rules of maintaining continued qualification are extremely complex. Unfortunately, many attorneys provide little guidance, particularly to individual Trustees, on the future operational issues of an SNT after the SNT is executed or, if called upon in the future to answer specific operational issues, fail to supply accurate information either through lack of competence or failure to stay current on program rules and recent cases.

B. A cash disbursement to the beneficiary (or any person acting on behalf of the beneficiary, such as a tutor, curator or agent under a power of attorney) offsets the SSI benefit dollar-for-dollar in the month of distribution, since the beneficiary could use the funds for food or shelter, regardless of how the beneficiary actually uses the cash.

C. In Kind Support and Maintenance (“ISM”)

1. SSI benefits are specifically intended to pay for a recipient’s food and shelter. The receipt, or right to receive, food or shelter from another, whether a family member or SNT, creates ISM which will reduce SSI benefits in the month of receipt. Food is easy to identify. Certain household operating expenses are considered ISM.

a. Property b. Heating fuel c. Gas d. Electricity e. Water

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f. Sewer g. Garbage Removal h. Property insurance required by a lender i. Rent

2. Generally, a home purchased for and in the name of the beneficiary or in a SNT is not a countable resource but, for SSI purposes, is considered as income in the form of ISM in the month of purchase only. If a SNT finances the purchase, its monthly payment of the mortgage results in the receipt of ISM in the form of shelter each month of payment, just like payment of rent. In the case of home ownership by a d4A trust, consideration also must be given to potential violation of the “sole benefit” rule if others occupy the residence rent-free.

3. A SNT can pay a credit card bill for the SNT beneficiary, but payments for food or shelter items constitute ISM.

4. Gift cards and gift certificates are considered cash equivalents and if the card/certificate can be used to buy food or shelter, it is treated as ISM (unearned income in the month of receipt and any unspent balance as a countable resource in the following months). Even if the store does not sell food or shelter items, if the card does not have a legally enforceable prohibition on the individual selling the card for cash, then it is still treated as unearned income.

5. Typical requests

a. I want a home.

b. I want a car.

c. I want a swimming pool. See In the Guardianship of Brandy Hollis, (Tex.App. 11/4/2014)

d. I want to go to Disney World with the family. See In re Irrevocable Supplemental Needs Trust, No. AO4 1018 (N.M. 12/14/2004)(unpublished opinion).

e. Can a family member be paid a Trustee fee and, if so, how much?

f. Can a family member be paid for caregiving services.

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These questions involve a careful review of the trust instrument itself, general fiduciary duties owed by the Trustee, an analysis of the sole benefit rule in the d4A SNT context, the impact on payments to family members if the family member also receives means-tested governmental benefits and the impact on payments to family members on a minor beneficiary’s eligibility for SSI under the SSI parental deeming rules of income and resources.

VII. Exposure in Terminating a SNT

A. Medicaid Payback in d4A Trust

1. Ascertaining and veryifing correct amount due Medicaid.

2. Ignoring the Medicaid claim. See In re Bruzga, 27 A.3d 804 (N.H. 2011) (attorney suspended for 6 months for ethical violations of knowing about Medicaid repayment requirement at beneficiary’s death but rendering incompetent advice and conflict of interest with the distributee).

3. Improper payments, such as funeral expenses, debts owed to third parties, payments to residual beneficiaries, etc. before Medicaid repayment.

B. Third-party SNT

1. What does the trust instrument provide?

2. Final accounting and release of Trustee

VIII. A SNT May Not Be Right for Your Client

1. Person who does not have a disability or who has a disability but likely to be gainfully employed in the near future and not require LTSS.

2. Person with small amount of countable assets or small net personal injury recovery (after payment of all Medicare/Medicaid liens and attorneys fees) who can utilize the remaining funds to:

a. Pay off past debt.

b. Spend down excess resources, including prepaying bills such as and taxes.

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c. Invest in non-countable assets (e.g., home or improvements or modifications to home, car, household furniture and appliances, pre-need funeral, computer, assistive technologies, etc.), leaving little excess assets to make funding an SNT worthwhile. These exempt assets can be purchased prior to funding a SNT with an inheritance or personal injury recovery without prejudicing eligibility for SSI or Medicaid. However, as long as the funds are available to the individual (such as in the beneficiary’s bank account), they generally will be considered income in the month of receipt and a resource in succeeding months in determining SSI/Medicaid eligibility.

3. Person who is capable of handling finances and receives non-means- tested based governmental benefits (e.g., SSDI and/or Medicare) in his or her own right or who may transition shortly to such benefits because the disability began before age 22 and the beneficiary’s parents are deceased, receiving SSDI or receiving Social Security retirement benefits.

a. It is important for the lawyer to verify the types of governmental benefits which the individual with a disability is receiving or likely to receive in the future. Often the client isn’t sure whether he/she is receiving SSI, SSDI or a combination of both.

b. If the individual receives only SSDI and/or Medicare, creating a SNT for the purpose of preserving SSI and/or Medicaid is not an issue, although a garden variety trust may be appropriate for asset management and asset protection. However, even if the individual is receiving SSDI and/or Medicare, is there a likelihood that the individual may need to reside in a skilled care facility if family were no longer available to provide care or could benefit from LTSS not covered by Medicare?

c. Those who transition to SSDI may have a two-year waiting period for Medicare coverage, so that preserving Medicaid and Medicaid waiver services through a SNT during this waiting period still may be important, or alternatively, as a “backstop” to Medicare once qualified.

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4. Person with very short life expectancy or who may not be able to benefit from “supplemental needs” (e.g., traumatic brain injury in unconscious state).

5. Person whose inheritance or personal injury recovery is so large that means-tested governmental assistance is not needed or desired since income generated will be more than sufficient to provide for the individual’s lifetime needs.

6. As long as the Affordable Care Act precludes health insurers from excluding coverage based upon pre-existing conditions, private medical health insurance may be available at affordable rates in lieu of Medicaid. However, in a majority of cases, Medicaid benefits and services will remain superior for persons with acute or chronic long-term care needs. There are no premiums, co-pays or deductibles under Medicaid and Medicaid covers most therapies, in-home services, skilled nursing services and residential programs as well as a wide variety of LTSS not covered by private health plans.

7. The SNT may not meet the client’s (or family’s) expectations. The person with a disability (or his/her family) may be unwilling to live within the fiscal, fiduciary and administrative restraints of a trust, particularly an SNT designed to preserve SSI and/or Medicaid eligibility. For example, some families view a personal injury recovery as a “family” bank account. A married client with children who becomes disabled as a result of a personal injury and receives a tort recovery may not want or desire to live within the “sole benefit” requirement of a first-party (self-settled) SNT discussed below.

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APPENDIX “A”

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APPENDIX “B”

Special Needs Trust Comparison

Issue Third-Party SNT Self-Settled SNT

Established By Third Party Parent, Grandparent, Guardian or Court

Funded by Assets of Third Party Person with Disability

Beneficiary Person with Disability and Person with Disability Only Non-Disabled Person

Grantor Trustee Yes No

Discretionary Yes Yes

Inter Vivos Yes Yes

Testamentary Yes No

Revocable Can Be No

Grantor Trust Can Be Yes – Beneficiary is Grantor

Gift Tax Annual Exclusion Can Use Should Not Use

Estate Tax Can be Excluded Includable

Distributions Payments to Third Parties Payments to Third Parties for Beneficiary’s Benefit for Beneficiary’s Benefit

Disability SSA Definition SSA Definition

Pay Back Provision No Yes

Medicare Claim No Yes

Medicaid Lien No Yes

Age Limit None 65 (except perhaps pooled trust)

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