Special Needs Trusts

April 21, 2017 | Author: Myles Miller | Category: N/A
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Special Needs Trusts - 2005 David J. Lillesand, Esq., Miami, Florida

Introduction. Trusts have long been used to preserve Supplemental Security Income (SSI), community Medicaid, and Medicaid Institutional Care Program (ICP) benefits. They come in four flavors. Congress amended the federal Social Security Act in August 1993 to create three types of permissible “special needs trusts” for disabled individuals to maintain their Medicaid benefits, and in December 1999, grafted two of the three types of special needs trusts to the SSI program. These three trusts, which are composed of otherwise disqualifying assets of the disabled person, are individual or self-settled Special Needs Trusts, also called d4A trusts; d4B trusts, also called income trusts or Miller trusts; and pooled trusts, or d4C trusts. The d4A, B, and C designations relate to the subsections of the statute creating the trusts, 42 USC §1396p(d)(4). A fourth type of Special Needs Trust, called a third party special needs trust, is distinguished from the first three on two grounds: the assets funding the trust belong not to the disabled individual, but to a “third party” such as a parent, grandparent, sibling, or other wellwisher, including a charitable organization or entity, and secondly, there is no Medicaid payback from the remaining funds in the trust on the death of the disabled individual in the case of third party SNTs. Statutory Definitions. Congress amended the Medicaid statute, Title XIX of the Social Security Act, to specifically outlaw trusts as a planning technique to gain access to Medicaid, primarily to slow the rising cost of nursing home Medicaid expenditures. Without hearings, congressional testimony, or other legislative history, Congress inserted the following provision in the Social Security Act, title XIX, by means of the Omnibus Budget Reconciliation Act of 1993, oft cited as OBRA ’93, and codified at 42 USC 1396p(d): (4) This subsection shall not apply to any of the following trusts: (A) A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court 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 title. (B) A trust established in a State for the benefit of an individual if-(i) the trust is composed only of pension, Social Security, and other income to the individual (and accumulated income in the trust), (ii) 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 title, and (iii) the State makes medical assistance available to individuals described in section 1902(a)(10)(A)(ii)(V), but does not make such assistance available to individuals for nursing facility services under section 1902(a)(10)(C). (C) A trust containing the assets of an individual who is disabled (as defined in section 1614(a)(3)) that meets the following conditions: (i) The trust is established and managed by a nonprofit association.

(ii) A separate account is maintained for each beneficiary of the trust, but, for purposes of investment and management of funds, the trust pools these accounts. (iii) Accounts in the trust are established solely for the benefit of individuals who are disabled (as defined in section 1614(a)(3)) by the parent, grandparent, or legal guardian of such individuals, by such individuals, or by a court. (iv) To the extent that amounts remaining in the beneficiary's account upon the death of the beneficiary are not retained by the trust, the trust pays to the State from such remaining amounts in the account an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State plan under this title.

Congress amended the Supplementary Security Income (SSI) statute, Title XVI of the Social Security Act, to specifically graft into SSI statutes and rules the OBRA ’93 exceptions for subsections (d)(4)(A) and (d)(4)(C) of 42 USC 1396p. Congress did not permit the adoption of (d)(4)(b), or Miller trusts, because to have done so, would have extended Medicaid to every retiree and disabled individual in the country who receives Title 2 Retirement or Disability Insurance Benefits. It would have been full adoption of a prescription drug benefit (which SSI recipients receive) as well as other program services. General Introduction to Self-Settled Individual and Pooled Special Needs Trusts. Eligibility for Supplemental Security Income (SSI) monthly disability benefits automatically entitles a disabled person under age 65 to SSI-related Medicaid in Florida, the District of Columbia and 30 states: Section 1634 of the federal Social Security Act, titled “Determinations of Medicaid Eligibility,” codified at 42 U.S.C. §1383c, provides as follows: SEC. 1634. [42 U.S.C. 1383c] (a) The Commissioner of Social Security may enter into an agreement with any State which wishes to do so under which the Commissioner will determine eligibility for medical assistance in the case of aged, blind, or disabled individuals under such State's plan approved under title XIX.

Florida and its sister states have, by statute and contract, pursuant to Section 1634 of the Social Security Act, given the exclusive authority to the federal government, through the Social Security Administration, to decide whether an individual is eligible for monthly SSI disability or age-related cash payments, and if so, the state must, as a matter of law, provide Medicaid health services benefits. Receipt of $1 of SSI cash benefits triggers automatic eligibility for full Medicaid benefits. Florida, like the majority of Section 1634 states, has implemented state legislation to satisfy its obligation in this federal-state agreement. In Chapter 409, a part of Title XXX, its Social Welfare statutes, Florida has acknowledged the mandatory obligation to provide Medicaid (“medical assistance”) to certain classes of individuals: 409.903 Mandatory payments for eligible persons.--The agency [Florida Medicaid] shall make payments for medical assistance and related services on behalf of the following persons who the department, or the Social Security Administration by contract with the Department of Children and Family Services, determines to be eligible, subject to the income, assets, and categorical eligibility tests set forth in federal and state law….


(2) A person who receives payments from, who is determined eligible for, or who was eligible for but lost cash benefits from the federal program known as the Supplemental Security Income program (SSI). This category includes a low-income person age 65 or over and a low-income person under age 65 considered to be permanently and totally disabled. [This full list contains 8 other categories of individuals eligible for Florida Medicaid – mostly children, and others in low-income families with children, certain children under age 21, foster care kids, adoption subsidized kids, pregnant women below 150% of the federal poverty level, and others.]

The State of Florida has further codified its agreement in the State Economic and Social Services Manual, Part 2000, “Coverage Groups” as follows: 2040.0801.01 Supplementary (sic) Security Income Coverage Groups (MSSI). Any Florida resident who has been determined eligible for SSI benefits is automatically entitled to Florida Medicaid. However, the individual must meet additional Title XIX requirements in order to be entitled to the Medicaid benefit of institutional care. SSI is a direct assistance program administered by the Social Security Administration (SSA) under Title XVI of the Social Security Act. The State of Florida elected to accept the determination of SSI eligibility, made by SSA, as determination of Medicaid eligibility. What are POMS and why should we be concerned with them. The Program Operations Manual System is the SSA staff manual. The POMS are important because they are the key ingredient to attorney success in qualifying their client for continuing SSI disability payments, which in turn, triggers full Medicaid eligibility for payment for doctors, hospitals, prescription medications, and related services. Familiarity with the POMS is essential to drafting minimally acceptable Special Needs Trust, and to making those trusts fully beneficial in their operation. In other words, there are two ways the practicing Social Security attorney can adversely affect the client: draft the trust improperly, so that it is not approved by SSA, and draft the trust in a way that restricts the trustee from providing the full benefits due the client according to the SSA rules. A thorough understanding of the POMS directly assists in avoiding both problems. Where do the POMS fit in the structure of law. The hierarchy of Social Security Law. The Social Security Act, first passed on August 14, 1935, was and still is thought of as a retirement program. However, over the years it has been expanded to become the centerpiece of United States social welfare legislation. The 1939 amendments added two new categories of benefits: payments to the spouse and minor children of a retired worker (dependent benefits), and survivors benefits paid to a deceased worker. This truly changed the Social Security program from a retirement program to a family-based economic security program. In 1956, the Social Security Act was amended to provide disability benefits to workers who had paid into the system, and who were ages 50-65. Two years later, benefits were extended to workers under age 50. In the 1960’s Medicare was created and initially assigned to SSA (it is now managed by the Centers for Medicare and Medicaid, and formerly by the Health Care Financing Administration (HCFA), beginning in 1977.


In 1935, the original Social Security Act introduced programs for needy aged and blind individuals, and in 1950, the benefits were extended to needy disabled persons as well. However, these “adult categories” programs, as they were called, were administered by the State and local governments, with some federal funding. Over the years, these state programs for the needy elderly, blind and disabled not covered by Social Security benefits grew into a hodgepodge of conflicting and complex state rules, durational residency requirements (to prevent poor people from moving from the South to the North), and a discrepancy of up to 300% between the benefits offered in one state (e.g., New York) versus those in another (e.g., Mississippi). In 1969, President Richard Nixon identified the need to bring reason and order into a “tangle of overlapping programs,” and persuaded Congress, in 1972, to “federalize” the adult categories by creating the Supplemental Security Income (SSI) program, effective January 1974. Some states, who were paying more than the newly set Federal Benefit Rate, were permitted to and still do supplement the federal amount. Eligibility requirements and federal payment standards, however, are now uniform. The statute providing for Supplemental Security Income (SSI) monthly payments to the aged, blind and disabled is contained in Title XVI of the Social Security Act, Sections 1601 through 1637, 42 U.S.C §§ 1381-1383f. While the statute provides eligibility guidelines, the Social Security Administration issues implementing regulations through the federal Administrative Procedures Act. However, where there is a conflict between the Act and the regulations, the Act controls. Social Security Regulations. The Social Security Administration, originally and now

again an independent agency of the federal government, publishes regulations affecting the SSI program in the Code of Federal Regulations (Employees’ Benefits), Section 20, Chapter III (Social Security Administration) which covers all aspects of the Social Security Act and the administration of the world’s largest adjudicatory system. In Part 416 (Supplemental Security Income) of 20 CFR, the rules for medical and financial eligibility for the SSI program are described in detail. There is not one single regulation, however, that addresses Special Needs Trusts. Trusts, like other assets, called “resources” under the program, are governed by the broad resource rules that apply to other assets, contained in Subpart L, 20 CFR §§ 416.1201 416.1266. Social Security Rulings. In addition to the regulations, the Social Security Administration issues “Rulings,” which are agency interpretations of policy issues, primarily, that are not addressed with specificity in the existing statutes and promulgated regulations. Rulings often emanate from court interpretation of Social Security law, or from medical advances in the diagnosis and treatment of disease, or the discovery of “new” diseases, such as AIDS and Chronic Fatigue Syndrome, that may impact on a person’s ability to work, or to be found “disabled.” Such rulings are often discarded if the agency later adopts a regulation that replaces the ruling, or if the statutes supporting the ruling are changed, or if one ruling or group is replaced with others. During the 1980’s the agency began a practice of “non-acquiescence” to federal court decisions, even at the level of the federal Circuit Courts of Appeal. This enraged Congress, and the Courts, since the agency was setting itself up as answering only to the United States Supreme Court’s interpretation of Social Security law. The agency is now required to either appeal an unfavorable decision in the Circuit Court of Appeals, or to follow it – at least in that circuit. Therefore, Rulings are used to announce SSA acquiescence in Circuit Court


pronouncements. If, however, SSA receives a favorable court decision it likes, even if it is only in one circuit, it may and often will adopt the decision nationwide in an “Acquiescence Ruling” to be applied everywhere. There are no Rulings on Special Needs Trusts. There are Rulings, however, on other financial eligibility issues, and on property and family relationship issues that affect financial eligibility. Finally, the POMS. Imagine administering a program that has 65,000 employees and provides benefit checks to 52 million Americans – each month! Add to that, keeping up with numerous changes wrought by Congress, Executive Branch changes in philosophy, and court decisions interpreting the application of the laws and regulations. How does the agency maintain uniformity and consistency in decision-making throughout the system so that residents in Alaska are treated the same as residents of Florida? The answer is a clear, direct, and instantly amenable Program Operations Manual. Thus we have the Program Operations Manual System, devised by SSA, and distributed to every employee in the agency from top to bottom, and a “public version” (the same as the internal version minus “the internal data entry and sensitive content instructions”), which is available on the Internet at http://policy.ssa.gov/poms.nsf. In fact, as of this year, 2002, SSA no longer maintains the paper version of the POMS and it is only available through the Internet. It is updated daily.

The Social Security Administration has issued the following disclaimer about the POMS on its Policy Information Site – “About POMS”: Please note that this document is intended for SSA employees. It contains technical terms and instructions that will be unfamiliar to you…. The POMS states only internal SSA guidance. It is not intended to, does not, and may not be relied upon to create any rights enforceable at law by any party in a civil or criminal action. Further, by posting the POMS, SSA is not thereby limited from exercising its otherwise lawful prerogatives. If the content of the POMS conflicts with the Social Security Act, another relevant statute, SSA regulations, or Social Security Rulings, those authorities have priority over the POMS.

While it may be legally true, in the real world of resolving problems for clients, it is best to “speak POMS” and only POMS when talking to SSA District Office staff, the SSA Claims Representatives (CRs) who process Initial Determinations and Reconsideration Decisions. However, when moving up the food chain of agency appeals, one needs to speak Statutes and Regulations to the Administrative Law Judges (ALJs), Rulings to the SSA Appeals Council, and POMS to neither. It should be noted that inside SSA, there was a pitched battle to keep the POMS from the public’s eye. The theory was espoused that if claimants learned what SSA is looking for, or even worse, if claimants’ attorneys could study the POMS, then far more people would qualify for benefits!


If the Social Security attorney can demonstrate to the SSA Claims Representative, however, that the disabled person’s Special Needs Trust falls within the four squares of the POMS instructions, a favorable determination will result for the benefit of the claimant. Organization of the POMS. The POMS are organized into ten main categories:

RM – Records Maintenance GN – General RS – Retirement and Survivors Insurance DI – Disability SI – Supplemental Security Income HI – Health Insurance NL – Notices, letters and Paragraphs VB – Special Veterans Benefits PR – Title II RCC Precedents PS – Title XVI RCC Precedents The POMS relating to maintaining Supplemental Security Income (and therefore, Medicaid eligibility) are found in SSI section, and all POMS pertaining to SSI benefits are preceded by the letters, “SI.” The SSI section is further broken down into 16 sections, each with 30-50 subsections of 3-5 pages each, yielding an estimated approximate total of 2,560 pages, not including the general sections, case processing and administrative, and related sections. The relevant SI POMS of most immediate concern to an attorney drafting a Special Needs Trust are found in the “Resources” Section, SI 011, and the sections on Trusts are found at SI 011020.200 - .204. In addition there is a new Regional POMS for the Atlanta Region, the SSA Regional Office for the States of Florida, Georgia, Mississippi, Alabama, North Carolina, South Carolina, Tennessee and Kentucky.

POMS Number

Title (Description of POMS)

Date Last Updated by SSA

SI 01120.200

Trusts Established Prior to 1/1/00, Trusts Established by Third Parties and Trusts Not Subject to Section 1613(e) of the Social Security Act (13 pages)


SI 01120.201

Trusts Established by an Individual on or after 1/1/00 (12 pages)


SI 01120.202

Development and Documentation of Trusts Established on or after 1/1/00 (7 pages)


SI 01120.203

Exceptions to Counting Trusts Established on or after 1/1/00 (11 pages)


SI 01120.204

Notices for Trusts Established on or after 1/1/00 (12 pages)



SI ATL 01120.201

Trust Property (An Atlanta Regional POMS of two pages)


SI 01150.121

Exceptions [to the Transfer of Resources Penalty] – Transfers to a Trust (4 pages)


PS 01825.00 et seq.

Title XVI RCC Precedents on Trusts [Regional Counsel’s Opinion Letters on 105 trusts] (105 Pages)


Regional Counsel Opinion Letters. Finally, the last section of the POMS as noted on

the previous page is titled, “PS - Title XVI RCC Precedents.” These Regional Counsel’s Opinion Letters respond to SSA staff questions about the applicability of Statutes, Regulations and the POMS to particular client cases and the application of state trust law on the analysis of the irrevocability of a trust. In the subsection on PS – Title XVI [SSI] precedents, for “Resources,” there is a collection of Regional Counsel’s Opinion Letters on Trusts and Trust law in 16 states. Section PS 01825 on “Trusts,” analyzes resources issues, including (d)(4)(A) trusts, written in 105 specific cases comprising 279 pages of “SSA administrative caselaw” as it were. Some of the Opinion Letters were written prior to the January 1, 2000, statute specifically adopting (d)(4)(A) and (C) trusts into the SSI (Title XVI) statute by reference. Some of the older trust opinions examine the resource issue even prior to OBRA ’93, and some deal not with the trust as a resource, but income distributions from trusts. These are the POMS materials available to us. What do they teach us? And how should we use them? Analysis of the typical (d)(4)(A) Special Needs Trust pursuant to the POMS. The statute is quite simple. It is one sentence, containing 81 words (obviously the sentence was written by a lawyer!). The SSI and Medicaid rules against trusts designed to acquire public benefits shall not apply to: A trust containing the assets of an individual under age 65 who is disabled (as defined in section 1614(a)(3)) and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court 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 title. 42 U.S.C. §1396p(d)(4)(A).

We will legally parse the six substantive terms of (d)(4)(A) and compare them to the relevant POMS sections. a. “A trust containing the assets of an individual...”

The disabled individual is considered to have established the trust if any assets of the individual, or the individual’s spouse, were transferred to the trust other than by will. Even


though the trust document may name a different grantor, if the assets being directed to the trust were the individual’s, it is a self-settled Special Needs Trust. SI 01120.201.B.7. Also, the Regional Counsel’s Opinion Letters make clear that if the defendant in a personal injury suit creates the trust, if the inheritance is an inheritance rather than naming the disabled person as the beneficiary of a testamentary trust, or if child support or alimony is directed to a Special Needs Trust without a court order, it is the assets of the individual. It is always the assets of the individual even if a court has taken control (of what would have been their assets) and forcibly directed them to a trust. The point of this, however, is not that the disabled individual cannot have a Special Needs Trust, but whether the Special Needs Trust must contain the Medicaid Payback provisions to be an excludable resource. If it is a true Third Party Special Needs Trust, for example, a testamentary trust from a mom or dad, which uses mom’s or dad’s funds, the Special Needs Trust does NOT have to have a Medicaid Payback. If the disabled individual’s funds are used to create the SNT, the trust must contain Medicaid Payback language. b. “Under age 65...”

There are several issues here, contained in SI 01120.203.B.1.b. First, if the trust was established prior to the time the individual had their 65th birthday, the trust exception (i.e., the trust is NOT a countable resource) continues to apply even after the disabled person’s 65th birthday. Secondly, no additions to the trust can be made AFTER the 65th birthday. That means no additional “outside” contributions; additions or augmentation due to investment income, interest or growth of trust principal is NOT prohibited additions to the trust. Unsettled is the question whether a structured settlement annuity that pays monthly benefits after age 65 is “new money” or “old money, just earning money.” Thirdly, if someone does add additional principal to the trust, the amount added will be counted as a countable resource subject to the regular resource rules. Draft the trust giving the trustee the authority to refuse to accept additional contributions after the beneficiary attains age 65. c. “Who is disabled...”

While it may seem obvious that the individual who establishes the trust must be “disabled,” the hidden issue is who gets to determine who is a “disabled person.” Fortunately, the POMS have anticipated the issue, and provided guidance to answer the question: can an attorney draft an acceptable Self-Settled SNT BEFORE SSA or another agency has determined that the person is “disabled” under the Social Security Act as defined, as the statute says, under Section 1614(a)(3)? Yes. And often attorneys are required to do so in the situation, for example, where the individual was working and healthy prior to the accident or occurrence of medical malpractice that led to their disability. No prior medical disability claim may have been filed prior to the settlement of the case, since the individual was hospitalized and not needing


disability income and continuing medical benefits coverage at that point, and if there was no PI settlement, there would be no need for a Special Needs Trust. Section 1614(a)(3) is the statutory definition of disability under the Social Security Act, and states: (A) Except as provided in subparagraph (C), an individual shall be considered to be disabled for purposes of this title if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months. (B) For purposes of subparagraph (A), an individual shall be determined to be under a disability only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work. For purposes of the preceding sentence (with respect to any individual), "work which exists in the national economy" means work which exists in significant numbers either in the region where such individual lives or in several regions of the country. (C)(i) An individual under the age of 18 shall be considered disabled for the purposes of this title if that individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. (ii) Notwithstanding clause (i), no individual under the age of 18 who engages in substantial gainful activity (determined in accordance with regulations prescribed pursuant to subparagraph (E)) may be considered to be disabled. (D) For purposes of this paragraph, a physical or mental impairment is an impairment that results from anatomical, physiological, or psychological abnormalities which are demonstrable by medically acceptable clinical and laboratory diagnostic techniques.

It is mandatory for the SSA CR to determine if the person to whom the transfer to (in the case of a disabled parent transferring funds to a disabled child, for example), or transfer from a disabled individual to a self-settled SNT is “disabled” pursuant to the above standard. For the attorney drafting a Special Needs Trust, an advisory opinion or opinion letter from an experienced Social Security/SSI Disability attorney should serve as the necessary foundation to proceed to draft the SNT for the “putative” disabled person. In POMS SI 01150.121, the section on Exceptions to the Transfer of Resources Penalty Trusts, the SSA CR is instructed that if the individual is the beneficiary of the trust is currently receiving Title 2 or Title 16 disability benefits, no further development of this issue is required. If they are not currently receiving benefits, and were not at the time the trust was created, then the SSA CR is to obtain an SSA Application, and send the case for a medical determination of disability, noting on the request to the disability determination service that “Disability determination need for SSI transfer of resources case. Alleged onset date mm/dd/yy is date of the resource transfer.” SI 01150.121.D.2. Thus, the Special Needs Trust can be created first, the determination of “disability” pursuant to the statutory definition can come later.


d. “Which is established for the benefit of such individual…”

Again, this may seem like a simple question, but it is simply deceiving – at least it was to SSA in the beginning. Shortly after the adoption of the 1999 FCIA assumption of OBRA ’93 into Title 16 of the SSACT, several Regional Counsel’s Offices began denying SS-SNTs that provided for intervivos or post-mortem compensation to trustees, payment of federal income taxes, or any other payments not made directly to the disabled beneficiary, on the grounds that such payments violated the Medicaid Payback provisions – that is, that Medicaid gets paid before anyone else. Fortunately, in August, 2002, the POMS were amended to clearly instruct SSA staff that they should consider a trust as meeting the “sole benefit requirement” if the trust benefits no one but the disabled individual during the individual’s life, but specifically permitting payment for reasonable compensation for trustees to manage the trust, as well as “reasonable costs associated with investment, legal or other services rendered on behalf of the individual.” SI 01120.201.F.2. However, don’t get caught by the seemingly weird exception for payment of funeral expenses, described in subparagraph f, below e. “By a parent, grandparent, legal guardian of the individual, or a court.”

This portion of the OBRA ’93 statute deals with who has the authority to establish the trust. The relevant POMS section, SI 01120.203.B.1.f., however, tells us what documents are essential to prove to SSA that the grantor had both the apparent and legal authority to create the trust. If the trust is created by a parent of a minor child, there is no further proof necessary of the legal capacity to do so, other than including a statement in the trust of the date of birth of the disabled beneficiary (to show they are under age 18), and alleging the parental relationship (“this trust is established by Mary Smith, the mother of John Jones, whose date of birth is October 12, 1996”). It is unclear what authority the grandparent would have to create a Special Needs Trust, using the funds of a minor child, and the POMS do not address this issue. In practice, however, it is not questioned, by any SSA Claims Representatives. If the trust is established by a legal guardian of a legally incapacitated adult, a certified copy of the Letters of Guardianship, or at least a reference in the trust itself that “the grantor is acting in their capacity as legal guardian for the disabled individual pursuant to the Guardianship of John Jones, Miami-Dade Circuit Court Case No. 02-1008 GD 02” should be sufficient. If the trust is established by a court, the court order approving the trust, as well as language in the trust document itself should be included with the SSA request for approval letter. Some attorneys prepare the Special Needs Trust as a court pleading, with the style of the case, and signed by the Circuit Court Judge as grantor. Some judges will not sign a trust document, but will sign an order authorizing another person to execute the trust on behalf of the court, or with the court’s approval. Of course, a copy of any such independent Court Order should be furnished to the SSA CR. In a November 2004 case, the Atlanta Regional Office of the Social 9.10

Security Administration suggested to the SSA Claims Rep reviewing a trust created from guardianship funds of an adult incompetent ward, with the court-appointed legal guardian as grantor, that since the funds originally derived from a suit against the federal government, only a federal judge could approve the trust. No authority was cited for this proposition, and the SSA Claim Representative was brave enough to tell the government attorneys employed in the Atlanta Regional Counsel’s Office that she believed the position of the SNT drafting attorney over their advice, and declined to deny the trust. What if a parent or grandparent for an adult competent child creates the trust? By what authority does the parent or grandparent create a trust, directing that the funds of their competent adult child be directed to the trustee of the Special Needs Trust? Other than violations of the Doctrine of Worthier Title, this area has, around the country, caused the greatest number of denials of SNTs by the Social Security Administration. The answer seems to be the creation by the parent (or grandparent) of an unfunded or nominally funded Special Needs Trust. In Florida, the dominant procedure in cases of parents establishing trusts for adult competent but disabled children, is to have the parent fund the trust with $10 (seed money) and the competent disabled individual adds his million dollar PI settlement to the already established trust that mom or dad or the grandparents created. This procedure was specifically reviewed by the Philadelphia Regional Counsel’s office of the Social Security Administration for the five states (Virginia, West Virginia, Delaware, Maryland and Pennsylvania) and the District of Columbia under its jurisdiction, stating: Every jurisdiction in Region III would recognize as a valid trust any agreement that satisfies the provisions of 42 U.S.C. 1382b(e)(5) including instances where a parent or grandparent establishes an empty trust or seed trust for the purpose of receiving a competent adult SSI beneficiary's assets at a later date. POMS PS 01825.042 Pennsylvania dated August 27, 2003. f. “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 August 15, 2002, a long-anticipated amendment to SI 01120.203 was issued that resolved some horrifying restrictive interpretations of Special Needs Trusts by the Seattle Regional Counsel’s Office. The POMS at SI 01120.203.B.1.f. had previously contained the language that: To qualify for the special-needs trust exception, the trust must contain specific language that provides that upon the death of the individual, the State will receive all amounts remaining in the trust, up to an amount equal to the total amount of medical assistance paid on behalf of the individual under the State Medicaid plan. The State must be listed as the first payee and have priority over payment of other debts and administrative expenses except as listed in SI 01120.203B.3.a. .


NOTE: Labeling the trust as a Medicaid pay-back trust, OBRA 1993 pay-back trust , trust established in accordance with 42 USC 1396, or as an MQT, etc. is not sufficient to meet the requirements for this exception. The trust must contain language substantially similar to the language above. An oral trust cannot meet this requirement.

However, as noted above, some Regional Counsel’s interpretations prohibited payment of trustee fees, taxes, and attorney fees prior to the death of the disabled person and the reimbursement to Medicaid. That is, the attorneys and trustees were to wait until the disabled person died, paid off Medicaid, and then see if there was enough left to pay a lifetime of past administrative and legal services. The Social Security Administration added a specific section, SI 01120.203B.3, which over-rules the Regional Office’s restrictive interpretations: 3. Allowable and Prohibited Expenses The following instructions about trust expenses apply to Medicaid special needs trusts and to Medicaid pooled trusts. a. Allowable Administrative Expenses The following types of administrative expenses may be paid from the trust prior to reimbursement of medical assistance to the State:

• •

Taxes due from the trust to the State or Federal government because of the death of the beneficiary; Reasonable fees for administration of the trust estate such as an accounting of the trust to a court, completion and filing of documents, or other required actions associated with termination and wrapping up of the trust.

b. Prohibited Expenses and Payments The following expenses and payments are examples of some of the types not permitted prior to reimbursement of the State for medical assistance:

• • •

Payment of debts owed to third parties; Funeral expenses; and Payments to residual beneficiaries.

c. Applicability This restriction on payments from the trust applies upon the death of the beneficiary. Payments of fees and administrative expenses during the life of the beneficiary are allowable as permitted by the trust document and are not affected by the State Medicaid reimbursement requirement.

Note, however, that payment for funeral expenses is still NOT ALLOWED prior to the payment of the Medicaid Payback lien. Trustees should be placed on notice of that requirement. If a Special Needs Trust has a provision directing the Trustee to pay funeral expenses on the death of the disabled person, before paying back Medicaid, the trust will be disallowed by SSA. For an example where a Special Needs Trust was disallowed on this ground, see the July 30,


2001, Chicago Regional Counsel’s Opinion Letter at POMS PS 01825.016A, PS 01-189 “SSIIllinois-Review of Proposed Irrevocable Special Needs Trust for Joyce H~” wherein it was stated that “a trust that provides for payment of the beneficiary’s funeral expenses prior to reimbursement of Medicaid expenditures to the State does not qualify for the Medicaid payback trust exception to counting as a resource under section 1613(e) [FCIA of 1999] of the SSAct.” However, another Opinion from the same Regional Office permits the purchase of an irrevocable funeral trust agreement. See PS 01825.017A, PS 02-039 “Indiana Irrevocable Funeral Trust Agreement for Franklin T. T~” dated March 11, 2002. Use of the SSA Analytical Eight-Step-Action Chart. In the POMS, at SI 1120.203D.1 and D.2, the Social Security Administration has provided a convenient eight-step-action chart to direct its staff, and attorneys, through a proper analysis of a Special Needs Trust presented for approval:

1. Special Needs Trusts under Section 1917(d)(4)(A) of the Act The following is a summary of special needs trust development presented in a step-action format. Refer to the policy cross-references for complete requirements. STEP



Was the trust established with the assets of an individual under age 65? (SI 01120.203B.1.b.) • •


Was the trust established with the assets of a disabled individual? (SI 011203B.1.c.) • •


If yes, go to Step 3. If no, go to Step 8.

Is the disabled individual beneficiary of the trust? (SI 01120.203B.1.d.) • •


If yes, go to Step 2. If no, go to Step 8.

If yes, go to Step 4. If no, go to Step 8.

Did a parent, grandparent, legal guardian or a court establish the trust? (SI 01120.203B.1.e.) • •

If yes, go to Step 5. If no, go to Step 8.



Does the trust provide specific language to reimburse the State for medical assistance paid upon the individual's death as required in SI 01120.203B.1.f.? • •


If yes, go to Step 6. If no, go to Step 8.

The trust meets the special needs trust exception to the extent that the assets of the individual were put in trust prior to the individual attaining age 65. Any assets placed in the trust after the individual attained age 65 are not subject to this exception. Go to Step 7 for treatment of assets placed in trust prior to age 65. Go to Step 8 for treatment of assets placed in trust after attaining age 65.


Is the trust irrevocable? • •


If yes, assets placed in the trust prior to age 65 are not a countable resource. STOP. If no, evaluate the trust under SI 01120.200 to determine if it is a countable resource.

The trust (or portion thereof) does not meet the requirements for the specialneeds trust exception. Determine whether the pooled trust exception in SI 01120.203B.2. applies.

2. Pooled Trusts Established under Section 1917(d)(4)(C) of the Act The following is a summary of pooled trust development presented in a step-action format. Refer to the policy cross-references for complete requirements. STEP



Was the trust account established with assets of a disabled individual? (See SI 01120.203B.2.b.) • •


If yes, go to Step 2. If no, go to Step 8.

Was the pooled trust established and maintained by a nonprofit association? (See SI 01120.203B.2.a, SI 01120.203B.2.c. and development instructions in SI 01120.203F.) •

If yes, go to Step 3.



Does the trust pool the funds, yet maintain an individual account for each beneficiary, and can it provide an individual accounting? (SI 01120.203B.2.d.) • •


If yes, go to Step 6. If no, go to Step 8.

Does the trust provide specific language to reimburse the State for medical assistance paid upon the individual's death from funds not retained by the trust as required in SI 01120.203B.2.g.? • •


If yes, go to Step 5. If no, go to Step 8.

Did the individual, parent(s), grandparent(s), legal guardian(s) or a court establish the trust account? (SI 01120.203B.2.a. and SI 01120.203B.2.f.) • •


If yes, go to Step 4. If no, go to Step 8.

Is the disabled individual the sole beneficiary of the trust account? (SI 01120.203B.2.e.) • •


If no, go to Step 8.

If yes, go to Step 7. If no, go to Step 8.

The trust meets the Medicaid pooled trust exception. Is the trust irrevocable? • •


If yes, the trust is not a countable resource. STOP. If no, evaluate the trust under SI 01120.200 to determine if it is a countable resource.

The trust does not meet the requirements for the Medicaid pooled trust exception. Determine if the undue hardship waiver applies under SI 01120.203E.

The CR will require a history of the funding of the trust, and a description and accounting of any disbursements from the trust, to comply with the CR’s duty to ascertain that first, the trust is not a “countable resource,” and second, that the disbursements from the trust are not income to the extent that SSI eligibility has been lost by violating any SSI income rules.


Disbursements from Trusts. There are two ways to screw up a disabled person’s life in

the trust situation: draft the trust improperly (see the first 15 pages of this outline) or administer or make improper disbursements from the trust, causing disqualifying income, or a transfer of resources penalty provision. The simple answer is to not make distributions for the benefit of others and, most importantly, follow the clearly stated distribution rules found in the federal regulations and the POMS. The trustee should be directed, in the trust document, to follow THE THREE GREAT RULES FOR DISTRIBUTIONS FROM SPECIAL NEEDS TRUSTS as described in the SSA Publication, “SSI Spotlight on Trusts:” “How does money from a trust that is not my resource affect my SSI benefits? •

Money paid directly to you from the trust reduces your SSI benefits.

Money paid directly to someone to provide you with food, clothing or shelter reduces your SSI benefit – but only up to a limit. No matter how much money is spent for these items, no more than $213 (in 2005) is subtracted from your SSI check for the month you receive the items.

Money paid directly to someone to provide you with items other than food, clothing and shelter does not reduce your SSI benefits. (Items that are not “food, clothing, or shelter” include medical care, telephone bills, education and entertainment, etc.)” [The “SSI Spotlight on Trusts” is available on the Internet at the SSA website, www.socialsecurity.gov].

It is simply malpractice to draft a self-settled trust more restrictively than these liberal rules allow. After all, it is the disabled person’s money that is funding the trust. To impose more restrictive trustee disbursement rules because the attorney is scared or unsure of himself or herself, may be more than malpractice; it borders on a tragedy. There is no reason that the disabled person should be cut off from his or her own funds. The attorney should not include provisions such as “None of these trust funds shall be used to furnish food, clothing or shelter to the beneficiary.” The basis for attorneys’ security is found in the POMS at SI 01120.201.I: I. POLICY--DISBURSEMENTS FROM TRUSTS 1. Trust Principal Is Not a Resource If the trust principal (or a portion of the trust principal) is not a resource, disbursements from the trust (or that portion) may be income to the SSI recipient/beneficiary, depending on the nature of the disbursements. Regular rules apply to determine when income is available.


a. Disbursements Which Are Income Cash paid directly from the trust to the individual is unearned income. b. Disbursements Which Result in Receipt of In-kind Support and Maintenance Food, clothing or shelter received as a result of disbursements from a trust by the trustee to a third party is income in the form of in-kind support and maintenance and is valued under the presumed maximum value (PMV) rule. (See SI 00835.300 for instructions pertaining to the PMV rule. See SI 01120.200F. for rules pertaining to a home.) c. Disbursements Which Are Not Income Disbursements from the trust by the trustee to a third party that results in the individual receiving items that are not food, clothing or shelter are not income. For example, if the trust funds are paid to a provider of medical services for care rendered to the individual, the disbursements are not income to the SSI recipient.

The THREE GREAT RULES for distributions from trusts, contained in both the SSI Spotlight on Trusts public handout, and the staff’s POMS, are based on the income provisions of the SSAct at Section 1612, 42 U.S.C. 1382a, and SSI income provisions of the federal regulations, 20 CFR §416.1100, 1121, and 1141 et seq. In an SSA Regional Counsel’s Opinion Letter, PS 01825.035 – New York – “PS 01-004 Trust Disbursements as In-kind Support and Maintenance,” the New York Regional Counsel’s office overturned an adverse decision by an Administrative Law Judge who had denied the disabled person’s benefits on the grounds that payments from the trust for food, clothing and shelter, were simply withdrawals from the trust by the disabled individual himself, to be regarded as cash, and therefore, counted as regular income distributions even though the payments were made to third parties for food, clothing and shelter. Because it was, to the ALJ, the claimant’s own money (which had funded the trust), the disbursements were not ISM. The Regional Commissioner protested, and the opinion from Regional Counsel noted that the ALJ’s rationale was incorrect as a matter of law. The trust funds were the legal property of the trustee, not the disabled person, citing II Scott on Trusts §3 and 76 Am Jur 2d Trusts §2, and accordingly, the payments are being made by “someone else,” the trustee, and entitled to ISM treatment, limiting the amount of the reduction SSI can take from the claimant’s federal benefit rate. Let’s consider an example of two disabled individuals, both of whose monthly income consists only of SSI disability payments. Each is awarded a substantial personal injury settlement. Each of them seek attorneys to prepare a Special Needs Trust, and accordingly each retains his tax-free SSI and Medicaid benefits. Attorney Jones drafts the trust with language that directs the Trustee to disburse funds to third parties to pay for the needs of the disabled client for everything “except for items which are food, clothing and shelter.” Attorney Smith, on the other hand, knows better and drafts the trust with disbursement language that incorporates the THREE GREAT RULES for spending money from Trusts. What is the result on the two clients’ lifestyle and SSI benefits?


Attorney Smith’s Good SNT Payments made by client from his SSI monthly check Shelter (rent, mortgage) Food Clothing Payments made by Trustee for client’s food, clothing and shelter Shelter (rent, mortgage) Food Clothing TOTAL TRUSTEE DISBURSEMENTS for food, clothing and shelter Reduction in SSI benefit check because of Trust Disbursements for food, clothing and shelter Federal benefit rate (potential SSI check) Reduction due to ISM trustee payments per SSI PMV Rule, 20 CFR §416.1140(a) NET SSI CHECK TO CLIENT Client’s Total “Lifestyle” From Trust From SSI TOTAL LIFESTYLE

Attorney Jones’ Restrictive SNT

$0 0 0

$ 300 250 29

$ 1,500 600 200

$0 0 0

$ 2,300


$ 579

$ 579

$ (215)


$ 364

$ 579

$ 2,300 364 $2,664

$ 579

Which attorney would you rather have? Which client would you rather be? What are “food, clothing and shelter” which may trigger the application of the Presumed Maximum Value Rule – the Magic Ten. The Social Security Administration has

published a very specific, informative POMS provision that defines exactly what is food, clothing and shelter.


Everyone knows what “food” and “clothing” are. But “household costs” is specifically limited in the POMS to ten, and only ten, very specific items listed in the POMS at SI 00835.465. Thus, if a trustee pays one or all of the ten items amounting to $213 or more per month, only the $213 maximum deduction from the SSI recipient’s check will be imposed. However, remember that the trustee may pay an unlimited amount of the ten items, for example, $3,000 per month, but only a maximum of $213 will be deducted from the SSI check. However, in some cases, a disabled person may not need assistance from a trustee with food or clothing, and minimal assistance with housing costs. If the trustee can identify and pay shelter costs that are NOT on the following list, then there will be no reduction in the disabled person’s SSI check. The “Magic Ten” that are all inclusive of “shelter costs” under SSI rules: 1.



Mortgage (including property insurance required by the mortgage holder)


Real property taxes (less any tax rebate/credit)




Heating fuel










Garbage removal

What would be commonly thought of as possible “shelter costs,” but not on the ten-item list which the trustee can pay without any deduction, are the following examples (a non-inclusive list): • condominium fees (however, to the extent that some household costs from the ten items above are included AND identifiable, then to the extent of these charges (such as garbage removal) they are used in the computation of ISM • homeowner association fees • telephone • cable TV • pool service • lawn service 9.19

• appliance maintenance contracts • pest control services or contracts • alarm service contracts

Is there a time when a trustee should not make trust disbursements for inkind support and maintenance for food, clothing and shelter expenses? Absolutely and emphatically yes! This is the time when careful analysis by the Social Security attorney will prevent a disaster. There are some occasions when application of the Presumed Maximum Value Rule, 20 CFR §416.1140(a), can result in complete loss of SSI and Medicaid. For example, when the disabled person receives Concurrent Disability Benefits to the extent that the SSI supplemental payment is less than the Inkind Support and Maintenance amount ($213 in 2005), or when the client’s receipt of other earned or unearned income rises to the level that the SSI check, before trustee disbursements, falls below the ISM amount, the client could lose SSI and Medicaid if ISM disbursements are made. Therefore, the true skill in drafting Special Needs Trusts is not in pulling some form SNT from a form book, but familiarity with the application of the Income rules of 20 CFR 416.1100-1182 to know when and how to structure the disbursements to maximize the client’s lifestyle without loss of SSI/Medicaid benefits. Atlanta Regional POMS and the Doctrine of Worthier Title problem. The Atlanta Regional Counsel’s Office has issued a regional POMS interpreting Florida law to say that a trust, created by the disabled person or someone acting on his behalf (parent, grandparent, guardian or court) is revocable, despite language to the contrary, in certain circumstances: For Alabama, Florida, Georgia, South Carolina and Kentucky, the trust must specify a particular person or entity as the residual beneficiary. In these states, if the trust states that after death the trust will go to a specifically named person or entity, or if it states that the trust is to go "to my children, or issue, or descendants", this is specific enough to identify a person and the trust is irrevocable. If, on the other hand, the trust language says that after death, the trust will go "to my estate" or "to the heirs" of the primary beneficiary (or some other non-specific general term), this is not sufficient. This trust would be revocable by the grantor because this wording is not specific enough to identify persons who, upon his death, may become his heirs. For Mississippi and Tennessee, the above general principle is not followed. In North Carolina, a specific person or entity may be designated. In addition, wording such as "to my estate" or "to the heirs" (or some other general non-specific term) is sufficient to name a residual beneficiary.

SI ATL01120.201 – Trust Property. A federal court appeal to the United States Eleventh Circuit Court of Appeals in Atlanta on a case arising from use of such allegedly “improper language” upheld the Social Security


Administration’s Regional POMS’ interpretation of Florida law with an unpublished opinion in the case styled Smiarowski vs. Commissioner of Social Security. A contrary result, based on that state’s law, occurred in the New Hampshire case of Shirley C. Lanoue, by and through her Legal Guardian, Office of Public Guardian vs. Commissioner, Social Security Administration, 774 A.2d 1236 (N. H. S.Ct. 2001). There are 18 published SSA Regional Counsel Opinion Letters, which represent, by far, the most frequent reason that Special Needs Trusts are disapproved by SSA Regional attorneys. However, if a Special Needs Trust has been drafted improperly and already executed, take heart: a Regional Counsel’s Opinion Letter approved a Special Needs Trust that had been originally drafted improperly (containing “heirs at law” as residuary beneficiaries) and denied by SSI and subject to a prior adverse Opinion Letter, but later was amended by the court on the petition of the Illinois Office of Public Guardian to provide for correctly nominated contingent beneficiaries. The Opinion Letter noted that the trust became an effective SNT on the date when the amendment took place. POMS PS 01825.016, PS 00-363 “SSI-Illinois-Review of The Laura P~ Trust.” Therefore, if an attorney has drafted a trust improperly, it behooves the attorney to seek to amend it immediately. Florida Medicaid Rules on Special Needs Trusts. The Florida Medicaid rules track the SSI POMS, but are much shorter and potentially less informative to practitioners. Again, if the claimant is an SSI recipient, and SSA approves the continuation of SSI benefits, Florida Medicaid is prohibited by law and U. S. Supreme Court decisions from independently reviewing the Special Needs Trust. The Florida rules, for those disabled individuals under age 65 who not receiving SSI are found in the DCF ESS Manual. The 2005 edition contains the following rules: 1640.0576.08 Exceptions for Trusts Set Up 10/93 or Later (MSSI,SFP) The policies listed above in passage 1640.0576.07 do not apply to the following trusts: 1 Trusts established by a will (see passage 1640.0576.03). 2 Trusts for the disabled under age 65. 3 Pooled trusts for the disabled. 4 Qualified income trusts (see passage 1840.0110). All special trusts must be forwarded to the District Program Office for review and District Legal Counsel's written approval before the case can be approved, per guidelines in the Appendix. The following special trusts may be created on or after October 1, 1993, for disabled individuals if the trust meets the specific criteria indicated below: TRUSTS FOR THE DISABLED UNDER 65: A trust containing the assets of a disabled individual under age 65, if:


1 it was established on or after 10/01/93; AND 2 it was established for the benefit of the individual by a parent, grandparent, legal guardian or a court (CANNOT be established by the disabled individual himself, must be by parent, grandparent, legal guardian or court order); AND 3 the trust stipulates the state will receive the balance in the trust upon the death of the individual up to an amount equal to the total medical assistance paid on behalf of the individual. POOLED TRUSTS FOR THE DISABLED: A trust containing the assets of an individual who is disabled, if: 1 it was established on or after 10/01/93; 2 the trust is established and managed by a nonprofit association; 3 a separate account is maintained for the beneficiary of the trust but, for purposes of investment and management, the trust pools the accounts; 4 the trust is established solely for the disabled individual by a parent, grandparent, legal guardian, court or the individual himself; AND 5 to the extent that amounts remaining in the trust upon the individual's death are not retained by the trust, the trust pays to the state an amount equal to the total amount of medical assistance paid on behalf of the individual. Both of the above special trusts can only be set up to benefit individuals who meet SSI disability criteria. Trusts for the disabled under 65 can be established only for individuals who are under 65. Pooled trusts for the disabled can be established for individuals of any age. Disability must be determined for both of the above special trusts via regular policy; that is, the person must receive Social Security disability or SSI benefits or the department must make an independent determination to show that the individual meets the disability requirement. 1640.0576.09 Treatment of Qualified Disabled Trusts (MSSI,SFP) After the trust is approved by the District Legal Counsel as meeting the criteria of a qualified trust for the disabled under age 65 or a pooled trust, apply the following policies to determine the individual's eligibility for Medicaid benefits: Do not consider the corpus of the exempt trust as an asset to the individual beginning with the month the assets are placed into an executed qualified disabled trust or pooled trust; Do not consider the funding of a qualified disabled or pooled trust as a transfer of assets or income subject to imposition of a penalty period, provided the trust purchases items and services at fair market value for the sole benefit of the disabled individual (refer to 1640.0609.06); Do not count any income deposited into the trust as income to the individual when determining the individual's eligibility; Do not consider disbursements from the trust to third parties as income to the individual; Do not consider any income earned by the trust which remains in the trust as income to the client; Count any payments made directly to the client as income to the client;


Count all income placed into the trust (along with countable income outside the trust) when computing patient responsibility. Standard spousal impoverishment policies apply. If income is deposited into the trust, the trustee must provide quarterly statements identifying the deposits (and disbursements) made to the trust for each month. Any funds paid directly to the individual from the trust must be counted as income to the individual. Disbursements not paid to the individual are not counted as income to the individual. Send a copy of the approved qualified disabled or pooled trust to the following address: Agency for Healthcare Administration Medicaid Third Party Liability Post Office Box 12900 Tallahassee, Florida 32317-290 When you receive inquiries regarding the settlement of remaining funds in the trust after a recipient’s death, tell them to make checks payable to Florida Medicaid and send to the above address. Also advise them to clearly identify the client by including a note with the client's full name and social security number or Medicaid number. If there are further questions, refer callers to the Public Consulting Group at 1-800-973-7828.

The ESS Manual, Appendix A 22.3, contains the following step-by-step instructions to DCF caseworkers and other employees in evaluating Special Needs Trusts for disabled individuals: GUIDELINES FOR REVIEWING TRUSTS FOR THE DISABLED INTRODUCTION. This guideline has two parts: Part I: Guide to determine if a trust established for a disabled individual is . . . • a qualified disabled trust in accordance with the Public Assistance Policy Manual, CFM165-22, Chapter 1600 (Legal Basis: 42 USC 1396p(d) (4)); OR • a “nonexempt” trust to be treated in accordance with the Public Assistance Policy Manual, CFM165-22, Chapter 1600 (Legal Basis: 42 USC 1396p(d) (3)). Part II: Guide on how to treat trust income and assets. Note: All references below refer to passages in the Public Assistance Policy Manual CF165-22. Further sources of information regarding SSI related Medicaid program policy may be located in 20 CFR 416 (Supplemental Security Income policy) and 42 CFR 435 (Medicaid policy). PART I: IS THE TRUST A QUALIFIED TRUST FOR THE DISABLED UNDER 65? STEP 1: Was the trust established on or after 10/1/93 with funds (income or assets) belonging to the individual or their spouse? (ESS determines this.) Background: It is okay if the trust is set up with the community spouse’s assets as long as the community spouse does not benefit from the trust. If the community spouse does or will benefit from the trust, this is not a qualified disabled trust and provisions in Chapter 1600 apply. **If YES, go to Step 2. **If NO, treat income/assets according to SSI rules in Chapter 1600. If the trust is set up with someone else’s funds, there is no transfer of assets. (Trust rules in Chapter 1600 do not apply.)


**If the trust was set up before October 1993, policies in Chapter 1600 apply. STEP 2: Was the trust set up for an individual under age 65 who is disabled as defined by Social Security criteria (1614(a) (3) of the Social Security Act)? (ESS determines this.) Background: A Medicaid determination of disability or receipt of Supplemental Security Income or Social Security benefits as a disabled person fulfills these criteria. If the client (including a family-related child or caretaker relative) does not receive SSI or Social Security Disability payments for himself and has not had a Medicaid disability determination done, it is necessary for the ESS to request a determination from the district medical review team or the Office of Disability Determinations according to appropriate standard procedures found in Chapter 1400. **If YES, go to Step 3. **If NO, follow the trust policy in section Chapter 1600. (If the trust is a pooled trust or an income trust, follow appropriate manual policy in Chapter 1600 or 1800.) STEP 3: Was the trust set up by a parent, grandparent, legal guardian or court? (ESS determines this; District Legal Counsel confirms.) Policy: The individual himself cannot set up a qualified disabled trust, nor can his power of attorney. If YES, go to Step 4. If NO, this is not a qualified trust for the disabled. If the trust was transferred “for the sole benefit of” (according to Chapter 1600) the disabled individual, transfer of asset provisions do not apply and the trust is evaluated according to the trust policy in Chapter 1600. STEP 4: Was the trust set up for the sole benefit of the individual (Chapter 1600)? (ESS provides information to DLC; DLC confirms that the trust provisions conform to ESS understanding.) Policy: If the trust benefits anyone other than the individual, whether at the time the trust is established or at any time in the future prior to the satisfaction of the state’s claim, it is not for the sole benefit of the individual. Policy: The trust may provide for disbursements for expenses associated with the trust or to purchase items and services for the sole benefit of the individual at no more than fair market value. The trust may provide for disbursements (after the client’s death) to other beneficiaries after the state is reimbursed. **If YES, go to Step 5. **If NO, the ESS must determine: • if a transfer of income/assets without fair compensation has occurred; and • if trust provisions in Chapter 1600 apply; and • whether income must be counted in determining eligibility. STEP 5: Is the trust revocable? (ESS determines; DLC confirms.) **If the trust is revocable, the corpus is a countable asset and the ESS needs to apply revocable policies in Chapter 1600. **If the trust is irrevocable, the corpus is not a countable asset; go to Step 6. STEP 6: Is the state (not necessarily Florida, because the individual may move to, or from, another state and receive benefits in both states) designated to receive the funds remaining in the trust at the time of the individual’s death up to the amount of benefits paid out by Medicaid during the individual’s lifetime? (ESS determines this; DLC confirms.)


Background: If a trust was set up while the individual was a resident of another state and the individual received Medicaid benefits in that state before receiving benefits in Florida, the trust must provide that the funds remaining in the trust are distributed to each state in which the individual received Medicaid, based on the state’s proportionate share of the total amount of Medicaid benefits paid by all of the states on the individual’s behalf. (Cite: Health Care Financing Administration (HCFA) State Medicaid Manual, section 3259.7) **If YES, the trust meets the criteria as a qualified disabled trust, apply provisions in Chapter 1600. Trust is exempt from transfer provisions and from trust provisions in Chapter 1600. **If NO, apply trust policies in Chapter 1600 and determine if this was a transfer “for sole benefit of” the individual to determine if transfer provisions apply. • If the trust meets “for sole benefit of” criteria (Chapter 1600), there is no period of ineligibility based on the transfer provision. • If the trust does not meet the transfer “for the sole benefit of” criteria, it must be considered a transfer of assets without fair compensation and a period of ineligibility must be imposed unless the individual can prove this was a transfer solely for another purpose than to become Medicaid eligible or that undue hardship applies. PART II: HOW TO CONSIDER ASSETS AND INCOME OF A TRUST FOR THE DISABLED. STEP 1: IF the trust meets the criteria of a qualified trust for the disabled under age 65, follow policies in Chapter 1600. Policy: Income deposited into the trust is not counted when determining if the individual meets the Medicaid income standard but is counted when computing patient responsibility for Medicaid residents in a nursing home. STEP 2: IF the trust does not meet the criteria of a qualified trust for the disabled under age 65, follow trust policies in Chapter 1600 or, ABSB if set up by someone else, follow policies in Chapter 1600.

Query: if Part II, Step 1’s “policy” is legal, which may be questionable, then if “income” deposited into the trust is computed when determining patient responsibility for Medicaid residents in nursing homes, it would follow that structured settlement annuities paid to the trustee of a Special Needs Trust could potentially disqualify the individual from receiving Florida Medicaid ICP benefits.

Income Trusts ("Miller Trusts." Income trusts established pursuant to 42 U.S.C.

1396(p)(d)(4)(B) allow for individuals to qualify for Florida Medicaid Institutional Care (nursing home) benefits despite income in excess of the income cap. Florida's income cap is calculated as three times the federal benefit rate. The federal benefit rate is the maximum federal SSI payment, which in 2005 is $579. Therefore, the income cap for the State of Florida is $1,737 in the year 2005. The income trust must, like a first party special needs trust, contain a provision specifying repayment to the State upon the individual's death up to the amount expended by the State.


Pooled (or d4C) Special Needs Trusts. A pooled trust is very much like an individual

(D4A) special needs trust but has the following unique characteristics: a. Many people are a part of the single pooled trust fund under management of the trustee, not just one person as with an individual special needs trust. There are many subaccounts in a typical pooled trust. There is a master pooled trust agreement, and individuals sign a “joinder agreement” to participate in the pooled trust. A pooled trust may be established by a parent, grandparent, legal guardian, court, or the individual himself or herself. b. All of the participants’ monies are “pooled” together for investment purposes, but disbursements are made individually to the extent of the individual’s contribution to the trust, and each account is separately administered, documented, and reported to the Social Security Administration. c. The Trustee of a pooled trust must be a not-for-profit institution. d. There is no age 65 restriction on creating or funding pooled trusts (as there is with individual trusts). e. Upon the death of the client, the trustee may retain whatever is left and use it for its charitable purposes including possibly contributing to the care needs of those subscribers who have run out of money. Anything that the Trustee does not retain must be paid to the government to reimburse the government for its expenditures spent on behalf of the client, to the extent of the expenditures made, before the remainder may be inherited by the disabled individual’s heirs. Third Party Special Needs Trusts. Third party special needs trusts are not established

under 42 U.S.C. 1396(p)(d)(4), but rather are trusts settled by a third party (typically a parent, a grandparent, or a sibling), with that third party's own resources, for the benefit of a disabled individual. Unlike first party or self-settled special needs trusts, third party special needs trusts need not include repayment provisions. The key ingredient for third party special needs trusts so that they don’t disqualify the disabled beneficiary is that they be fully discretionary trusts, with the trustee having the ability to act unreasonably to legally withhold any distributions, and being specifically instructed to consider whether any particular distribution would adversely affect public benefits, and withhold, if the trustee so chooses, such distribution. If on the other hand the trust determined to be a “support trust” and the trustee is obligated to spend a sum certain, or even have a general by legally enforceable obligation to “support” the disabled individual, the entire amount in the trust will be counted towards the SSI and SSI-related Medicaid resource eligibility limit of $2,000 in any given month, with the high probability that the disabled individual will lose federal tax-free SSI payments of almost $7,000 per year, plus loss of Medicaid health insurance benefits. \\newdell\company\cle courses\2005 els cert course\snt outline - lillesand 2005.doc


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