Special Needs Trusts

Unlike SSDI and Medicare, Supplemental Security Income (SSI) and Medicaid are income and asset sensitive public benefits that require planning to preserve. In Florida (and most states), one dollar of SSI benefits automatically brings Medicaid coverage. This is very important, as it is imperative to preserve some level of SSI benefits if Medicaid coverage is needed in the future. SSI is a cash assistance program administered by the Social Security Administration. It provides financial assistance to needy aged, blind, or disabled individuals. To receive SSI, the individual must be aged (65 or older), blind or disabled and be a U.S. citizen. The recipient must also meet the financial eligibility requirements.

Medicaid provides basic health care coverage for those who cannot afford it. It is a state and federally funded program run differently in each state. Eligibility requirements and services available vary by state. Medicaid can be used to supplement Medicare coverage if the client has both programs. For example, Medicaid can pay for prescription drugs as well as Medicare co-payments or deductibles.

A special needs trust (SNT) is required if the client is receiving Supplemental Security Income (SSI) or Medicaid. A SNT is a trust whose corpus or any assets held in the trust do not count as resources for purposes of qualifying for Medicaid or SSI. Thus a personal injury settlement can be placed into a SNT so that the victim can continue to qualify for SSI and Medicaid. Federal law authorizes and regulates the creation of a SNT. 42 U.S.C. §1396p(d)(4)(A)-(C) governs the creation and requirements for such trusts. First and foremost, a client must be disabled in order to create a SNT. There are 3 primary types of trusts. First is the (d)(4)(A) trust which can only be established for those who are disabled and are under age 65. This trust is established with the personal injury victim's settlement money and is established for the victim's own benefit. Second is a third party SNT which is established and funded by someone other than the personal injury victim (i.e., parent, grandparent, donations, etc. . .) for the benefit of the personal injury victim. The victim still must meet the definition of disability. Third is a (d)(4)(c) trust typically called a pooled trust (described in more detail below) that may be established with the disabled victim's funds without regard to age restriction.

A SNT can only be established for those 65 or under. If you have a client 65 or older that is disabled the only trust option is a pooled trust. A pooled trust is established and managed by a Non-Profit. The trust has to maintain separate accounts for each trust beneficiary, but the funds are pooled for purposes of investment and management. Any funds that remain in the trust beneficiary's account at death must be retained by the Trust or used to reimburse Medicaid. There are other options such as a personal services contract or the purchase of exempt assets that can keep the nursing home resident eligible for public benefits.

As a general rule, a SNT can pay only for things that benefit the Medicaid recipient for whom the trust was created. It can provide for medical items or services Medicaid does not currently cover or to improve the quality of life of the Medicaid recipient. However, a Medicaid recipient that establishes a SNT cannot have unrestricted access to the money in the trust to spend at his or her whim.

An injury victim has to live with the restrictions that come with public assistance eligibility if they establish a SNT. The trust funds can only be utilized to meet the "supplemental "or "special" needs of the beneficiary. However, supplemental or special needs are interpreted quite broadly and include non-Medicaid covered medical and dental expenses, attendant care (24 hours or as needed), durable medical equipment, supplies, rehabilitation services (respiratory, physical, occupational, speech, visual and cognitive), transportation (including vehicle purchase), vehicle maintenance and insurance. This is by no means a comprehensive list. The trust can pay for any medical needs if Medicaid does not already provide for those needs.

The trust can also pay for non-medical items, such as vacations, travel to visit relatives or friends, electronic equipment (including MP3 player, CD players, televisions, DVD players and computer equipment), camps, educational needs (private school, college or technical school tuition), and other monetary needs that enhance your child's quality of life, comfort or situation. The trust generally cannot pay expenses that are "food and shelter", which are part of the SSI disability benefit payment. Nevertheless, even "shelter" expenses are broadly defined and would exclude payments by the trustee directly to a cleaning service employed to clean an injury victim's home. If the "food and shelter" rules are violated, the SSI payment can be reduced but an injury victim can still remain eligible for Medicaid as long as they receive one dollar of SSI per month or apply independently for Medicaid.

A SNT is an irrevocable trust. However, if an injury victim's situation changes and public assistance eligibility is no longer an issue, the trust could be reformed by court order or possibly terminated by judicial action. If the trust is reformed, the trustee would still make the assets available to the trust beneficiary and it would operate as any other trust fund would operate. The trustee would no longer have to worry about keeping the injury victim eligible for public assistance. The trust would continue to meet the injury victim's financial needs. Medicaid would still have to be repaid for services they provided from the date of creation of the trust until it is reformed. Similarly, if the trust were to be terminated, Medicaid would have to be repaid first before any assets are distributed.

Pursuant to 42 U.S.C. §1396p(d)(4)(A), a SNT can only be established "if the State will receive all amounts remaining in the trust upon the death of such individual up to an amount equal to the total medical assistance paid on behalf of the individual under a State plan under this subchapter." Thus any funds remaining in the trust at death first go to repay Medicaid for any and all benefits they have provided the SNT beneficiary over his or her lifetime. The recovery is only for benefits provided subsequent to the creation of the trust. Therefore, if a third party lien was satisfied at the time of a personal injury settlement, the recovery from the trust would only be for accident related benefits provided after satisfaction of the lien. However, there could be Medicaid services provided prior to or during the treatment for the accident which gave rise to the lien that are not accident related that will have to be paid back out of the SNT.


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