April 2015

Legal Issues when someone has Dementia – Who can Speak for a Person with Dementia?

Posted on April 30, 2015 by Jim Koewler — No Comments ↓

People with dementia have trouble or the complete inability (if the dementia is bad enough) to make decisions about their health care and about their assets. The dementia causes a disconnection with the world and/or an inability to communicate that prevents the sufferers from understanding the need to make decisions about health care or about assets or from communicating those decisions to the people who must act on the decisions. Often, it becomes necessary for someone else to make the decisions and make those decisions known.

Perhaps the person with dementia has previously prepared a General Power of Attorney (often called a Durable Power of Attorney) and/or a Health Care Power of Attorney. If so, then the determination of who can speak for the person is easy. The Agent(s) appointed in those documents have the decision-making authority.

Perhaps the person with dementia has not prepared a General Power of Attorney or a Health Care Power of Attorney. In that case, the determining who can make decisions for the dementia sufferer is much trickier. There is rarely a clear cut answer.

For people trying to provide care for the dementia sufferer, the worst case scenario might be a sibling rivalry among the children. That rivalry might appear outwardly as unresolvable conflict. (I’ve written about such sibling disputes in my blog of January 31, 2014 (“Family is the other F word”) and February 7, 2014 (“When did Fredo die?” using a story line from “The Godfather Part 2” as an example) because they arise all too often.)

If there is such a sibling rivalry, the dementia sufferer’s caregivers are caught on the horns of a dilemma. There is no one person in charge, so the caregivers have to figure out how to get decisions made. At the same time, because of the rivalry among the children, there are likely to be repercussions no matter what decision is made and what action (or inaction) taken.

Future installments will discuss these issues in more detail.

Setting aside Money for a Loved One with Special Needs

Posted on April 23, 2015 by Jim Koewler — No Comments ↓

Today’s blog post continues the series about Special Needs Law. The blog post on February 19, 2015 gave an overview of the legal issues facing people with special needs. The blog post on February 5, 2015 discussed hidden problems with the new ABLE accounts. The blog post on February 26, 2015 discussed sources of income for people with special needs. The blog post on March 5, 2015 discussed medical insurance for people with special needs. The blog post on March 12, 2015 discussed how the Social Security Administration requires people with special needs to prove a disability to qualify for Supplemental Security Income (SSI.) The blog post on March 19, 2015 discussed how the Social Security Administration requires people with special needs to prove financial eligibility to qualify for Supplemental Security Income. The blog post on March 26, 2015 gave an overview how someone with special needs can get rid of excess resources to become “poor enough” to qualify for SSI and Medicaid. The blog post on April 2, 2015 discussed how a Special Needs Trust can help shelter excess resources from SSI and Medicaid scrutiny. The blog post on April 9, 2015 discussed how a Pooled Trust can help shelter excess resources from SSI and Medicaid scrutiny. The blog post on April 17, 2015 discussed how an ABLE account (when fully implemented by the U.S. Department of Treasury and the various states) can help shelter excess resources from SSI and Medicaid scrutiny.

Today’s post discusses parents, grandparents, and other family members (and, for that matter, anyone) can make money and other assets available to someone with special needs without creating a problem with his or her Supplemental Security Income (SSI) or Medicaid eligibility.

Most parents and grandparents want to name their children and grandchildren equally in their wills. A child or grandchild who relies on SSI or Medicaid who receives assets (no matter from where the assets come) can lose SSI or Medicaid because of these new assets. The arrival of the assets can be income, causing the special needs person to fail the income eligibility test. If enough of the assets remain in the possession of person with special needs a month later, then the person may fail the asset eligibility test. When the assets are used up, then the person may get back onto SSI and/or Medicaid. (Giving the assets away to achieve eligibility will be considered an “improper transfer” or “illegal transfer,” which still creates ineligibility for the time period that the assets would have covered.)

So, how do parents and grandparents share their legacies with their loved ones who have special needs?

The most common way to leave a legacy for a loved one with special needs is through a trust. The person who wishes to make sure that money (or other assets) are available to someone with special needs will set up a trust for the benefit of that loved one. (If a trust already exists, then the person who wishes to leave money or other assets can transfer the money/assets into the already existing trust.)

First, let’s be clear about something very important. We are talking about money and other assets that never belonged to the person with special needs. Such money and assets would be considered “third-party” money/assets because they never belonged to the person with special needs (the first party) who wants government benefits (or may want benefits in the future) from Medicaid and/or SSI (the second party.)

The person who sets aside the money (Let’s call this person the “donor.”) has no legal obligation to set money aside for the person with special needs (Let’s call this person with special needs the “beneficiary” since we’re talking about trusts.) Because there is no legal obligation to give money or assets to the beneficiary, the donor’s money isn’t subject to a payback requirement like with assets placed in a stand-alone first-party Special Needs Trust or with a Pooled Trust.

So, when setting aside money for someone who needs, or will likely need, Medicaid and/or SSI, the keys are:

To avoid screwing up the beneficiary’s Medicaid or SSI eligibility, and
To avoid wasting the donated assets, like through a payback requirement after the beneficiary dies.

If the donor gives money or assets to the person with special needs, that money and those assets would then belong to the person with special needs. The money and assets must be considered in determining the eligibility (or continuing eligibility) of that person for Medicaid and SSI benefits. In other words, giving money or assets to someone on SSI or Medicaid might make that person too “rich” to get SSI or Medicaid. The person with special needs could be forced to spend the money or assets before SSI or Medicaid would be available for his or her care. The gift directly to the person with special needs makes the gifted money and assets the property of the person with special needs, and, therefore, subjects them to his or her asset and income limits. Such a direct gift reduces the costs of the government programs and increases the costs to the family.

A trust, if prepared properly, can hold the money for the person with special needs, as the lifetime beneficiary, without reducing or cutting off SSI or Medicaid benefits. The trust contents never belong to the beneficiary, so they don’t become “first-party” money. Because it isn’t first-party money, it isn’t subject to the beneficiary’s control.

The trust must also be written to avoid an obligation to pay out for things that SSI and Medicaid would normally pay. Many trusts state that they are meant for the health, maintenance, welfare, or support of the beneficiary. SSI and Medicaid pay for health, maintenance, welfare, or support. Such a trust would have to pay out for the beneficiary’s benefit before Medicaid and SSI would pay.

To avoid the perception of a payment obligation, the trust should have no payment obligation during the lifetime of the beneficiary. The best way for a trust to have no payment obligation is to have no “standard” for payment. (A “standard” for payment is an event or condition triggering a payment obligation, such as health care costs of a beneficiary when the trust says it is for the beneficiary’s health.) A Wholly Discretionary Trust, in the Ohio Revised Code, is the most often used no-standard trust for this purpose in Ohio (where I work.)

A Wholly Discretionary Trust provides that the trustee (a person other than the person with special needs) can pay out of the trust when he or she wants with complete discretion. (I wish that the name of the trust were “Completely Discretionary Trust” because people often hear “Holy Discretionary Trust” with some sort of religious meaning rather than “Wholly Discretionary Trust” is the sense of complete discretion. Unfortunately, the Ohio Revised Code uses the name “Wholly Discretionary Trust,” so that name is pretty much stuck in place.)

With a Wholly Discretionary Trust, the trustee can pay out for a beneficiary when the trustee wants, for any reason or for no reason. Likewise, the trustee can choose not to pay out of the trust for any reason or for no reason. For example, a trustee can feel pretty good about life on a sunny day and decide to use the trust contents to buy something for the beneficiary. Likewise, a Cleveland Browns fan (in a fit of frustration) could easily decide that he or she will pay no money from the trust until the Browns win the Super Bowl (meaning that the beneficiary may never get anything, if the Browns continue to play as poorly as in recent memory.)

Because a trust such as this (if set up properly) has no payback obligation, the trust can be set up to pay out to someone else after the initial lifetime beneficiary (the person with special needs) dies, acting like a will. The remaining contents of the trust (if any) can go to brothers and sisters, nieces and nephews, parents, grandchildren, or anyone else whom the grantor (the person who initially set up the trust) wishes to benefit. The remaining contents can go to a charity as well, if that is the grantor’s wish.

Some people call trusts like this “third-party special needs trusts.” I prefer not to use that label. Because first-party special needs trusts must have a payback obligation, SSI and Medicaid personnel take notice of anything that is called a “special needs trust.” I’d rather call these trusts something else to avoid having to clarify (over and over) the difference between a first-party special needs trust that has a payback obligation and a third-party special needs trust that has no payback obligation. I like to call them “supplemental services trusts.” (I don’t care if you call one “Bob” or “Stairway to Heaven.” I just suggest avoiding the words “special needs.” There’s no legal necessity to avoid those words. It’s just a suggestion to help avoid confusion.)

As mentioned above, the donor doesn’t need to set up a new trust if one already exists for a particular person with special needs. Perhaps,for example, one set of grandparents already set up a supplemental services trust for a special needs grandchild as part of the grandparents’ estate plan. Rather than creating a new trust, the other grandparents can designate that existing trust as the recipient of the money that they wish to set aside for the grandchild. (The original creators of the trust need not be grandparents. It can be anyone. I just used grandparents as an example.)

In fact (absent some serious internal family squabble,) I think it is better to have only one such supplement services trust. To work properly, a supplemental services trust should be completely separate from the people who set it up. It must be irrevocable. Because of the complete separation from a person or a married couple, the trust must pay its own taxes and have its own accounting. Two separate trusts paying for tax preparation and accounting services wastes money that could have remained in trust for the benefit of the beneficiary with special needs. To avoid duplicate trusts, the person or couple that sets up a supplemental services trust must make the trust known to other family members and to anyone else likely to wish to set aside money for the beneficiary.

To set aside money for someone with special needs, the most protective vehicle to hold that money is an irrevocable wholly discretionary trust. This allows a person with special needs to participate in the last will and testament of or a significant gift from a relative, just like the siblings and cousins who do not have special needs. At the same time, if done correctly, the gift via trust does not take away the Medicaid and SSI benefits on which the person with special needs might rely.

The ABLE Account and Qualifying for SSI and Medicaid

Posted on April 17, 2015 by Jim Koewler — No Comments ↓

Today’s post discusses how an ABLE (Achieving a Better Life Experience) account can help a person with special needs go from having too many assets to having few enough assets to qualify for (and maintain eligibility) for Supplemental Security Income (SSI) and, if necessary, for Medicaid.

I first discussed ABLE accounts in my blog post of February 4, 2015 shortly after the law creating them was passed. That blog post focused on the need to control the amount of money that goes into an ABLE account from other people, like the parents or grandparents of the person with special needs, for example (so-called “third-party money.”) Today’s blog post will focus on the usefulness of an ABLE account as a place to put first-party money (, money that belongs to the person with special needs.)

NOTE: ABLE accounts are not yet available. The necessary law has passed Congress and received President Obama’s signature. The U.S. Treasury Department must still issue implementing regulations, and the various states must approve them in each state. (The state’s do most of the work on Medicaid, so their cooperation on the interface between ABLE accounts and Medicaid is necessary.) Despite their not being available at this time, I am discussing ABLE accounts this week because, for editorial purposes, this topic fits in with the series currently underway about qualifying for SSI and Medicaid for people with special needs.

For purposes of placing “excess money” somewhere that it won’t make a person with special needs too “rich” to receive Supplemental Security Income (SSI) and/or Medicaid for long term care, an ABLE account has the same effect as a stand-alone Special Needs Trust (discussed in the blog post of April 2, 2015) and a Pooled Trust (discussed in the blog post of April 9, 2015.)

A person with special needs who has excess resources will be able to place assets into an ABLE account without being penalized by the Social Security Administration or Medicaid for giving away assets. An ABLE account can only received $14,000 in any one year. A person with special needs who has limited assets may need only to make an ABLE account deposit to remove excess resources from being counted against them for SSI and Medicaid eligibility. For someone with more assets, an ABLE account may be part of the plan but probably not the only answer. (A person can have only one ABLE account, so there’s no gaming the system to protect more money by creating multiple accounts.)

BIG LIMITATION: Under the recently passed law, ABLE accounts are available only to people with special needs whose disability started before the age of 26.

Background: To understand the importance of ABLE accounts, just like the importance of individual Special Needs Trusts and Pooled Trusts, one must remember how Social Security and Medicaid treat someone who has given away money to become financially eligible. (If you read my blogs every week, this next part will seem very repetitive because the background info is the same for individual Special Needs Trusts, Pooled Trusts, and ABLE accounts. I am repeating it here because I don’t want a first time reader or someone looking at this blog in the archive to have to go find the background reasoning in a prior installment. Also, if you read my blog every week, you must have insomnia badly.)

As we’ve discussed in prior installments, both the Supplemental Security Income program (the Social Security program for people who are disabled but don’t have sufficient work history to qualify for Social Security Disability Income) and the Medicaid program (health insurance for poor people) are “means tested.” Accordingly, people who have the financial means to pay for themselves are not eligible for SSI or Medicaid. Because, for many people. there is a very high emotional cost (and sometimes a care cost) in allowing all of their life savings to be spent away, people look for a way to protect some of their assets while still qualifying for SSI and Medicaid. Giving money (or other assets) to a relative, a trusted friend, or a trust helps protect the assets given away, but the gifts can make the applicant ineligible for SSI and Medicaid or trigger limited Medicaid coverage for a time.

That ineligibility for, or restrictions on, SSI and/or Medicaid would create a problem for many people with special needs. They often need the SSI income and the Medicaid health insurance right away. At the same time, they want the ability to get some personal items or entertainment that they wouldn’t be able to afford if all they had were SSI income and Medicaid coverage, so they would like to find a way to “keep” some of their savings.

An ABLE account, like a Special Needs Trust or a Pooled Trust can help fix the collision of the need for SSI and Medicaid and the desire to preserve some assets. Someone who needs SSI and Medicaid but who has too much money to qualify can put up to $14,000 of the excess money into an ABLE account without getting a penalty of ineligibility or restricted coverage.

The differences between an ABLE account (as I expect or hope them to be implemented) and an individual Special Needs Trust or a Pooled is the apparent ease of use of the ABLE account as compared to the trusts.

Money from an ABLE account can be used for education, and/or medical prevention and wellness services. (Expenditures from a stand-alone Special Needs Trust or a Pooled Trust for such services effectively reduce government benefits, but these expenditures from an ABLE account should not impact government benefits.) In addition, the ABLE account can pay for transportation, assistive technologies, personal support services, financial management and administration, oversight, monitoring, funeral and burial expenses, and legal fees. So, the contents in an ABLE account cannot be used for as many different types of purchases as the contents of an individual Special Needs Trust or a Pooled Trust.

Also, at least at this point, it’s possible that an ABLE account won’t need a person to act as go-between for the cash in the account and the actual expenditure. ABLE accounts may give the person with special needs more direct control over the assets in the account than the person has over the assets in a Special Needs Trust or a Pooled Trust. The limitations on the types of allowed expenditures may allow some more direct involvement by the account holder (, the person with special needs.) Of course, the implementing regulations might create a go-between mechanism to prevent the account holder’s receipt of cash which could then cause an problem with SSI eligibility for having excess income.

Like an individual Special Needs Trust and a Pooled Trust, an ABLE account has a payback requirement. When the ABLE account holder (the person with special needs) dies, the account must repay Medicaid for the costs of care that Medicaid had previously paid for the beneficiary up to the amount left in the account. (If the contents of the account are worth more, then the excess assets can be given out to remainder beneficiaries, like how a will operates. If the Medicaid “debt” is equal to or greater than the ABLE account balance, then Medicaid gets it all.) If the account holder uses the entire contents of his or her ABLE account, then Medicaid gets nothing. That’s okay. The person with special needs was were able to make maximum use of his or her SSI benefits, his or her Medicaid benefits, and his or her own assets.

As mentioned above, an ABLE account can accept up to $14,000 per year. (That amount may go up with inflation just like the gift tax exemption goes up every few years.) For the purpose of having few enough assets to qualify for SSI and Medicaid, the annual limitation isn’t an issue. Someone with special needs is trying to qualify for SSI and Medicaid right now. Once that person qualifies, annual income must be controlled to keep eligibility. That control on income probably prevents the person from accumulating enough money in any later year to make any new deposit into an ABLE account or at least from making a large deposit. Unless someone with special needs has an unexpected influx of money (like an inheritance, or an accident settlement, or a lottery win,) only the initial ABLE account deposit is likely to be important to SSI or Medicaid eligibility.

While an ABLE account can legally accept deposits from anyone (like a parent or grandparent, for example,) the payback requirement creates a disincentive for any deposits of third-party money. (Remember, money that never belonged to the person with special needs isn’t subject to a payback requirement. So, putting any third-party at risk of being paid to Medicaid upon the death of the intended beneficiary seems like a waste of money.)

Also, because the ABLE account will be a bank account or a brokerage/investment account and because of the annual $14,000 limitation on deposits, the ABLE account cannot accept real estate. This is not a place to protect a home for the person with special needs.

In conclusion, if a person with special needs must shed some assets to qualify for SSI or Medicaid, an ABLE account (at least as set up in the law) can help shield a certain amount of money from being counted. The ABLE account may be only part of the asset-protection strategy, but its apparent ease of use may prove valuable for expenditures over many years – in addition to the benefit of helping the account holder achieve SSI and Medicaid eligibility.

The Pooled Trust and Qualifying for SSI and Medicaid

Posted on April 9, 2015 by Jim Koewler — No Comments ↓

Today’s blog post continues the series about Special Needs Law. The blog post on February 19, 2015 gave an overview of the legal issues facing people with special needs. The blog post on February 5, 2015 discussed the new ABLE accounts. The blog post on February 26, 2015 discussed sources of income for people with special needs. The blog post on March 5, 2015 discussed medical insurance for people with special needs. The blog post on March 12, 2015 discussed how the Social Security Administration requires people with special needs to prove a disability to qualify for Supplemental Security Income (SSI.) The blog post on March 19, 2015 discussed how the Social Security Administration requires people with special needs to prove financial eligibility to qualify for Supplemental Security Income. The blog post on March 26, 2015 gave an overview how someone with special needs can get rid of excess resources to become “poor enough” to qualify for SSI and Medicaid. The blog post on April 2, 2015 discussed how a Special Needs Trust can help shelter excess resources from SSI and Medicaid scrutiny.

Today’s post discusses how a Pooled Trust can help a person with special needs go from having too many assets to having few enough assets to qualify for (and maintain eligibility) for Supplemental Security Income (SSI) and, if necessary, for Medicaid.

A Pooled Trust is very similar in operation to a Special Needs Trust discussed in the blog post of April 2, 2015 (last week.)

A person with special needs who has excess resources can can place assets into a Pooled Trust without being penalized by the Social Security Administration or Medicaid for giving away assets. Chapter 42, Section 1396p(d)(4)(c) of the United States Code authorizes Pooled Trusts. (Special Needs Trusts are covered by subsection (d)(4)(a) of the same section of the U.S. Code.) (As I mentioned last week, the U.S. Code is the set of laws created by Congress, the set of laws that “Bill” from School House Rock joins after he’s passed by Congress and signed by the President.) Because of the subsection of the law that allows these trusts, they often are called d4c trusts.

As a technical matter, these d4c trusts are self-settled because the assets that are going into the trust belong to the person with special needs. The are not often called “self-settled,” however, because the person with special needs is not setting up the trust (and no one is setting it up on behalf of the special needs person, like a parent, spouse, or a court.) These pooled trusts are already set up.

These Pooled Trusts are not third-party trusts because the money that is going into a pooled trust is from the special needs person. (A third party can contribute to a Pooled Trust, but that is simply a gift. A third person’s contributions to a Pooled Trust, even for the benefit of a person with special needs, has no impact on Supplemental Security Income or Medicaid eligibility for the person with special needs.) A future installment will discuss third-party trusts in more detail.

To understand the importance of the Pooled Trusts, just like the importance of individual Special Needs Trusts, one must remember how Social Security and Medicaid treat someone who has given away money to become financially eligible.

A Pooled Trust (i.e., d4c trust,) like a d4a Special Needs Trust can help fix the collision of the need for SSI and Medicaid and the desire to preserve some assets. Someone who needs SSI and Medicaid but who has too much money to qualify can put the excess money into a Pooled Trust trust without getting a penalty of ineligibility or restricted coverage. Then, the money is available, under certain restrictions, for the benefit of the person.

The difference between a Pooled Trust and an individual Special Needs Trust is a difference in the costs and in the administrative hassles of running the trust.

A Pooled Trust is kind of like a mutual fund. A mutual fund is a pool of money from many people lumped together to make investments that benefit all of the investors. The individual investors don’t have to pick the stocks in which to invest or the time to buy and sell. The individual investors don’t have to track the times of sales and purchases and dividend payouts for the stocks in the fund. The fund managers have those duties.

A Pooled Trust accepts cash from someone with special needs and puts it together with all of the other money put into the trust by other people with special needs and invests that money to benefit all of the participants. Each participant’s share of the trust assets are proportional to their cash invested in the trust. (The trust manager tracks the participants’ value in the trust.)

The trust contents that belong to a particular participant can be withdrawn from the trust (usually in small amounts) to pay for something for the person with special needs (i.e., the participant in the Pooled Trust.) Usually, the person with special needs has an intermediary or a spokesperson who communicates with the Pooled Trust managers to arrange specific purchases. (Direct contact between the person with special needs and the trust managers would look too much like the person with special needs had direct control over the trust contents. Such direct control would probably cause SSI and Medicaid to count the participant’s share of the Pooled Trust as assets available to the person with special needs, resulting in that person having too many assets to qualify for SSI and/or Medicaid.)

Like with an individual Special Needs Trust, a Pooled Trust cannot give the beneficiary cash (except for $20 per month spending money as discussed in an earlier installment ) without causing a reduction of the beneficiary’s SSI income. Similarly, the Pooled Trust can’t spend money on food or shelter for the person with special needs without causing a reduction in SSI.

Also like with the individual Special Needs Trust, a Pooled Trust has a payback provision. When the Pooled Trust participant (the person with special needs who put the assets into the trust in the first place) dies, the trust must repay Medicaid for the costs of care that Medicaid had previously paid for the beneficiary up to the amount of that beneficiaries remaining assets in the Pooled Trust. (If the contents of the trust are worth more, then the excess assets can be given out to remainder beneficiaries, like how a will operates. If the Medicaid “debt” is equal to or greater than the participant’s balance in the Pooled Trust, then the Medicaid gets it all.)

There is a twist on the repayment requirement common in Pooled Trusts. Pooled Trust contents may be given to charity rather than paid to Medicaid. Because Pooled Trusts are usually operated by charities, the Pooled Trust might encourage that its operating charity be designated as the remainder beneficiary.

Even though the family of the special needs person won’t receive the contents of the Pooled Trust, an investment in a Pooled Trust still benefits the person with special needs. By placing excess assets into a Pooled Trust, the person with special needs can get SSI and/or Medicaid. The person with special needs can also get “extra” stuff while on SSI and Medicaid. SSI and Medicaid are necessary for some people with special needs, but they provide a bare minimum of income and health insurance. They don’t provide entertainment or clothing or anything else above the bare minimum. SSI and Medicaid don’t provide any “spice” to life. They are safety net programs. They aren’t supposed to provide “spice.”

A d4c Pooled Trust can provide some spice. It can buy baseball tickets, a TV, a vacation, a magazine subscription, a computer and internet access to name just a few examples. A Pooled Trust, like a special needs trust, can provide just about anything (anything that is legal, anyway) for the beneficiary to allow the beneficiary to have something more than the bare minimum to survive.

If the beneficiary uses the entire contents of his or her share of the Pooled Trust, then Medicaid gets nothing and the charity gets nothing. That’s okay. They were able to make maximum use of their SSI benefits, their Medicaid benefits, and their own assets.

Unfortunately, in many states, the person with special needs can place assets in the trust only if he or she is younger than age 65. So, this kind of trust isn’t available for most seniors. In Ohio, where I practice, people over 65 can place assets into a Pooled Trust. (It’s one of several Ohio quirks in the public benefits programs. Those quirks might go away if a proposal by the governor is adopted.)

So, what are the differences between a Pooled Trust and an individual Special Needs Trust?

As mentioned above, in some states, a person over 65 can use a Pooled Trust.
A Pooled Trust cannot accept non-cash assets. The Pooled Trust chooses its own investments and must maintain a certain amount of ready cash to pay requests for payouts. Any incoming non-cash assets probably won’t fit with the trust’s investment strategy and also might screw up the cash on hand.
Because a Pooled Trust is investing in the stock and bond market, it can’t take real estate. An individual Special Needs Trust can own a house in which the person with special needs can live. A Pooled Trust can’t own that house because it can’t be commingled in with the trust contributions of the other participants.
A Pooled Trust has lower costs to each participant (by spreading those costs over all participants and/or getting support for administrative costs from the money left over from deceased participants who designated the operating charity as the remainder beneficiary.) An individual Special Needs Trust pays all of its own administrative costs. My rule of thumb (when the age 65 restriction isn’t a factor and a house isn’t involved) is that I recommend an individual Special Needs Trust for a pile of assets over $50,000. I recommend a Pooled Trust for lower amounts.

A d4c Pooled Trust allows someone with special needs (who has some assets) to continue to enjoy those assets during his or her lifetime and still get SSI and/or Medicaid. It allows the beneficiary to avoid the empty feeling that can come from watching his or her life savings escape while trying to qualify for SSI and Medicaid.

Wow, that was long for a blog post. Sorry.

The Special Needs Trust and Qualifying for SSI and Medicaid

Posted on April 2, 2015 by Jim Koewler — No Comments ↓

Today’s post discusses how a self-settled Special Needs Trust can help a person with special needs go from having too many assets to having few enough assets to qualify for (and maintain eligibility) for Supplemental Security Income (SSI) and, if necessary, for Medicaid.

Someone with excess resources can set up a Special Needs Trust according to the Chapter 42, Section 1396p(d)(4)(a) of the United States Code. (The United States Code is the set of laws created by Congress, , the set of laws that “Bill” from School House Rock joins after he’s passed by Congress and signed by the President.) Because of the subsection of the law that allows these trusts, they often are called d4a trusts.

These d4a trusts are self-settled. That means that the person with special needs is putting his or her own money (or other assets) into the trust. That is an important distinction with third-party trusts into which someone other than the person with special needs places assets. (A future installment will discuss third-party trusts in more detail.) To understand the importance of the first-party nature of d4a trusts, we should review how Social Security and Medicaid treat someone who has given away money to become financially eligible.

As we’ve discussed in prior installments, both the Supplement Security Income program (the Social Security program for people who are disabled but don’t have sufficient work history to qualify for Social Security Disability Income) and the Medicaid program (health insurance for poor people) are “means tested.” Accordingly, people who have the financial means to pay for themselves are not eligible for SSI or Medicaid. Because, for many people. there is a very high emotional cost (and sometimes a care cost) in allowing all of their life savings to be spent away, people look for a way to protect some of their assets while still qualifying for SSI and Medicaid. Giving money (or other assets) to a relative, a trusted friend, or a trust helps protect the assets given away, but the gifts can make the applicant ineligible for SSI and Medicaid or trigger limited Medicaid coverage for a time.

That ineligibility for, or restrictions on, SSI and/or Medicaid would create a problem for many people with special needs. They need the SSI income and the Medicaid health insurance right away. At the same time, they want the ability to get some personal items or entertainment that they wouldn’t be able to afford if all they had were SSI income and Medicaid coverage, so they would like to find a way to “keep” some of their savings.

A d4a special needs trust can help fix the collision of the need for SSI and Medicaid and the desire to preserve some assets. Someone who needs SSI and Medicaid but who has too much money to qualify can put the excess money into a d4a trust without getting a penalty of ineligibility or restricted coverage. Then, the money is available, under certain restrictions, for the benefit of the person.

The contents of the trust can be used only for the benefit of the person who put the assets into it (while that person is alive.) The trustee (the person who is the fiduciary in charge of the trust) can spend money from the trust for the benefit of the beneficiary (who MUST BE the special needs person who put the assets into it in the first place.) The trustee cannot give the beneficiary cash (except for $20 per month spending money as discussed in an earlier installment ) without causing a reduction of the beneficiary’s SSI income. Similarly, the trustee can’t spend money from the trust on food or shelter for the beneficiary without causing a reduction in SSI.

Perhaps the biggest restriction on the d4a trust is the requirement for a payback provision. When the beneficiary (the person with special needs who put the assets into the trust in the first place) dies, the trust must repay Medicaid for the costs of care that Medicaid had previously paid for the beneficiary. (If the contents of the trust are worth more, then the excess assets can be given out to remainder beneficiaries, like how a will operates. If the Medicaid “debt” is equal to or greater than the contents of the trust, then the Medicaid gets it all.

So, if Medicaid is going to get it all anyway, why put anything into a d4a trust? To get “extra” stuff while on SSI and Medicaid, that’s why. SSI and Medicaid are necessary for some people with special needs, but they provide a bare minimum of income and health insurance. They don’t provide entertainment or clothing or anything else above the bare minimum. SSI and Medicaid don’t provide any “spice” to life. They are safety net programs. They aren’t supposed to provide “spice.”

A d4a special needs trust can provide some spice. It can buy baseball tickets, a TV, a vacation, a magazine subscription, a computer and internet access to name just a few examples. A special needs trust can provide just about anything (anything that is legal, anyway) for the beneficiary to allow the beneficiary to have something more than the bare minimum to survive.

If the beneficiary uses the entire contents of the trust, then Medicaid gets nothing. That’s okay.

Unfortunately, the person with special needs can place assets in the trust only if he or she is younger than age 65. So, this kind of trust isn’t available for seniors.

Also, a trust into which other people place money for the special needs person (a third-party or d4c trust) is often called a special needs trust, but I usually call them something different. I will discuss these third-party trusts in a future installment.

A d4a trust allows someone with special needs (who has some assets) to continue to enjoy those assets during his or her lifetime and still get SSI and/or Medicaid. It allows the beneficiary to avoid the empty feeling that can come from watching his or her life savings escape while trying to qualify for SSI and Medicaid.