SSA IS SERIOUS ABOUT THE SOLE BENEFIT RULE

A “first party” (Medicaid payback trust) has a very important requirement for acceptance by SSA and Medicaid—it must exist and be managed by the trustee for the “sole benefit” of the beneficiary.  The SSA appears to have become increasingly strict in its interpretation of what “sole benefit” means.  For example, a trustee is not permitted to pay the transportation costs to bring (e.g., to fly in) relatives of the disabled person for a visit.  Even though bringing relatives for a visit (especially when travel for the disabled person is difficult if not nearly impossible) may seem like a wise and caring “benefit” to the disabled person, paying travel expenses for the relatives will violate the “sole benefit” rule.

Can the trust pay for the travel expenses of a “companion” to travel with the disabled person?  Most likely, yes, if the companion was the guardian or a required caregiver employed to assist and protect the disabled person so that the latter can travel safely.  Paying for additional family members, such as siblings, may be an enjoyable “benefit” but not a “sole benefit” for the disabled beneficiary.  Trustees must be careful to avoid violating the sole benefit rule.

WILL THE AFFORDABLE CARE ACT (“OBAMACARE”) AFFECT THE NEED FOR SPECIAL NEEDS TRUSTS?

In June, the U.S. Supreme Court upheld most of the provisions of the Affordable Care Act, originally signed into law in 2010, considered by some to be the most significant piece of health related legislation since the implementation of Medicare and Medicaid put in place during the Johnson administration in the 1960’s.

There are many unanswered questions that arise due to the passage of this very significant law.  Since the Supreme Court upheld a majority of the reforms of the new law, the planned result will be that most citizens will be able to obtain some form of health coverage, with premium subsidies to make private coverage deemed to be more affordable.  Since some individuals who are currently or may in the future need to obtain medical coverage and only Medicaid would otherwise be their option, will the availability of coverage under the ACA cause them to avoid seeking Medicaid benefits, and thus eliminate the need for self settled special needs trusts?  Some commentators think it is too early to tell. 

It appears that under the ACA, individuals with pre-existing conditions will still be able to obtain health insurance.  This factor alone may cause some to opt for private coverage than be bound by the Medicaid rules. 

There are other components to Medicaid such as long term living arrangements that private insurance may or may not cover which may cause the need for special needs trusts to continue to be needed.  It will probably take months or even a year or two before some of the details work themselves out into exactly how this new law will work for individuals.  Even if private insurance becomes available, it still may be too expensive to cover an individual with substantial “pre-existing” conditions thus leaving Medicaid as the only serious option still available as a practical matter. 

Until the fog clears as to the rules and implementation of the new law, special needs trusts will still be an appropriate option for individuals who may now or in the future require the assistance of long term health care and supports or medical care.

Curtis J. Shacklett, Esq.

Barber & Bartz, P.C.

525 S. Main St., Ste. 800

Tulsa, OK 74103-4511

Telephone:  (918) 599-7755

Facsimile:  (918) 599-7756

Email:  cshacklett@barberbartz.com

Website:  www.barberbartz.com

Trust Advisor: Pros and Cons

In my June, 7, 2012 blog post, I mentioned the new Oklahoma Statute authorizing the creation of a "Trust Advisor" within a trust instrument. (The language of the new Oklahoma Statute can be found here.) I personally believe this person (the "Trust Advisor," hereafter "TA") can play a positive role in the administration of a Special Needs Trust (SNT) and may also be helpful in dealing with beneficiaries whose lives and changing circumstances suggest a person other than the trustee might be aware of facts and information about the beneficiary, family dynamics, etc., that can be useful if such person were to "advise" or inform the trustee of those facts. Such information or advice can assist the trustee in making wiser decisions in making or withholding a distribution from the trust.


In the case of an SNT, a TA (or his/her legal counsel) knowledgeable in Medicaid and Social Security rules can be of critical importance in enabling the trustee to avoid managing the trust or making fatal or impermissible distributions from an SNT which would negatively affect the protected status of the SNT and its assets, or negatively affect the beneficiary's right to continued receipt of public benefits.


An experienced trustee, such as a professional/corporate trustee, may or may not welcome the appointment of a TA. The acceptance of a TA may depend on how the TA views his/her role and what powers are granted to the TA in the document, and how the TA actually exercises those powers.


Asset management is usually best left in the hands of the professional trust officer since that is one of the many things they are trained to do, and granting power to a TA to direct the trustee as to asset management may backfire or even result in the trustee declining to accept the role of trustee out of increased apprehension of liability for a "bad" investment outcome.


A TA could be given power to remove and replace a corporate trustee with another trustee closer to the beneficiary's city or state of residence. If acceptable to the trustee, the TA could be given the following examples of powers:

• Power to modify the trust within certain described limitations;


• Power to determine which state law should apply to the trust and power to "relocate" the situs of the trust to a sister state;


• Power to direct distributions to an individual or to and among a class of beneficiaries;


• Power to terminate a trust.

None of the above examples of powers of a TA are set forth in our new statute and whether or not any of them are contemplated by the statute is uncertain. The statute provides that the powers given to the TA seem to involve those related to the property of the trust. What specific powers granted to a TA relate to "property" and what relate to something else is not clear. The statute also indicates that the terms of the trust instrument may contain powers granted to the TA (as well as to the trustee) which may be different from the role of the TA as described in the statute.

Although there are many unknowns as to how the new statute will be implemented by estate planning and trust attorneys, or how well the role of the TA will be accepted by professional trustees, I believe the role of a Trust Advisor is a welcome tool in our desire to provide flexibility to our trusts to better handle future uncertainties. We suggest you discuss the benefits and the role of the Trust Advisor with your attorney when designing your estate planning documents, and especially in a SNT for your special needs family member. If you comtemplate designating a corporate trustee, seeking their input and consent to the appointment of a TA may be wise.

Curtis J. Shacklett, Esq.
Barber & Bartz, PC
525 S. Main St., Ste. 800
Tulsa, OK 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
Email: cshacklett@barberbartz.com
Website: http://www.barberbartz.com/

Early Termination of Medicaid "Pay Back" Special Needs Trust Prior to the Death of the Beneficiary

The Social Security Administration has recently amended its “Program Operating Manual System” (POMS) to allow for the early termination of a (first party) special needs trust prior to the death of the beneficiary (a “first party” special needs trust is one established for a disabled person, funded with assets belonging to the disabled person). Prior rules only permitted the termination upon the death of the beneficiary. This change is a logical approach to handling situations where keeping the trust in place no longer makes sense. For example: (1) the trust has diminished in size to such an extent that keeping the trust active is not practical or is too expensive; (2) the beneficiary has overcome his/her disabling condition, and continued receipt of Medicaid benefits are no longer needed or desired; or (3) the trust is large enough and Medicaid benefits needed are minimal so that the strict rules of the trust along with Medicaid compliance creates too many constraints on the freedom of use of the trust assets. These types of situations might suggest the early termination of the SNT.

The POMS specific rules which must be included in the language of the trust in order to allow for early termination are as follows:

1. Upon early termination, (i.e., termination prior to the death of the beneficiary), the State(s), as primary assignee, receive all amounts remaining in the trust at the time of termination up to an amount equal to the total amount of medical assistance paid on behalf of the beneficiary under the State Medicaid plan(s); and



2. Other than payment for those expenses listed in SI 01120.199F.3. [specifically, (i) taxes due from the trust to the State(s) or Federal government due to the termination of the trust and (ii) reasonable fees and administrative expenses associated with the termination of the trust], no entity other than the trust beneficiary may benefit from the early termination (i.e., after reimbursement to the State(s), all remaining funds are disbursed to the trust beneficiary; and
   


3. The early termination clause gives the power to terminate to someone other than the trust beneficiary.

Existing trusts might be amended with the consent of the Oklahoma Department of Human Services to include “early termination” language, if deemed appropriate.

Curtis J. Shacklett, Esq.
Barber & Bartz, P.C.
525 S. Main St., Ste. 800
Tulsa, OK 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
Email: cshacklett@barberbartz.com
Website: www.barberbartz.com

The Trustee Advisor - A Benefit or a Burden?

Recently (April 2012), the Oklahoma Governor signed a new law, effective November 1, 2012, amending the Oklahoma Trust Act authorizing the creator of a Trust to appoint a "Trustee Advisor." This brief statutory amendment reads as follows:

"Trustee advisor" means a person appointed by the terms of the trust
instrument to act as an advisor to the trustee with regard to all or some of the
matters relating to the property of the trust. Unless otherwise provided by the
terms of the trust instrument, if a trustee advisor is appointed, the property
and management of the trust and the exercise of all powers and discretionary
acts exercisable by the trustee remain vested in the trustee as fully and
effectively as if an advisor were not appointed, the trustee is not required to
follow the advice of the trustee advisor, and the trustee advisor is not liable
as or considered to be a trustee of the trust or a fiduciary when acting as an
advisor to the trust.

Unlike some sister states' laws authorizing the use of a Trustee Advisor which set forth very specific powers which can be granted in the trust document to the Trustee Advisor, our new statute grants no specific powers to a Trustee Advisor. Instead, the Trustee Advisor is truly an "advisor" only to the Trustee, and the Trustee is not required to follow the advice of the Trustee Advisor. The statute does state, however, that this outcome (i.e., the Trustee Advisor is truly only an advisor not a director to the Trustee and, thus, the Trustee Advisor cannot direct the Trustee to take certain actions) can be modified by the written terms of the trust document. This means that apparently there is a right that the person creating the trust may appoint someone (i.e., the Trustee Advisor) who is not the Trustee and grant that person power to direct the Trustee in certain areas of management of the trust. Some of these areas may include investments; amount and frequency of distributions to a beneficiary; modification of, or even amendment to, the trust. In a future post, I will address some of the pros and cons of naming a Trustee Advisor in a trust document.

Curtis J. Shacklett
Barber & Bartz
525 S. Main Street, Suite 800
Tulsa, Oklahoma 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
E-mail: cshacklett@barberbartz.com

CAN A SPECIAL NEEDS TRUST OWN A HOUSE FOR THE BENEFIT OF A DISABLED PERSON RECEIVING SSI AND/OR MEDICAID?

Sometimes a disabled adult (or guardian of a disabled adult) who has received a personal injury settlement (or large inheritance) which was placed into a special needs trust (SNT) containing a Medicaid payback provision, will inquire about the trustee purchasing a home for the disabled person. This post will address an issue of the trustee purchasing a home for a disabled adult person for his/her own use/benefit.

The Social Security POMS provide considerable guidance regarding home ownership by a trust for a disabled person. Section SI 01120.200 F.1., provides:

If the trustee of a trust which is not a resource for SSI purposes purchases and holds title to a house as a home for the beneficiary, the house would not be a resource to the beneficiary. It would also not be a resource if the beneficiary moved from the house. The trust holds legal title to the house, therefore, the eligible individual would be considered to be living in his/her own home based on having an “equitable ownership under a trust.”

Thus, the mere ownership of a home by the trust is not problematic to the disabled beneficiary. However, as recited below, the POMS provide that payment by the trust of mortgage payments, and other household expenses will be deemed to be income to the disabled person, thus impacting (reducing, most likely) such person’s SSI check each month:

(section F. 3. b) If the trust, which is not a resource, purchases the home with a mortgage and the individual lives in the home in the month of purchase, the home would be ISM [In-kind Support and Maintenance--a form of income] in the month of purchase. Each of the subsequent monthly mortgage payments would result in the receipt of income in the form of ISM to the beneficiary living in the house, each payment [i.e., of the monthly mortgage note] valued at no more than the PMV [presumed maximum value] (see SI 01120.200 E.1.b).

In addition, the POMS provide that certain household expenses paid for by the trustee can be deemed to be income to the disabled individual:

(section F. 3. c): “If the trust pays for other shelter or household operating expenses, these payments would be income in the form of ISM in the month the individual has use of the item. …If the trust pays for improvements or renovations to the home, e.g., renovations to the bathroom to make it handicapped accessible or installation of a wheelchair ramp or assistance devices, etc., the individual does not receive income. Disbursements from the trust for improvements increase the value of the resource and, unlike household operating expenses, do not provide ISM.”

Thus, an outright purchase without an ongoing mortgage is one way to reduce the “income” problem to the beneficiary. However, payment by the trust of normal household operating expenses (e.g., utilities, ad valorem taxes, water/sewer, garbage removal, etc) will be deemed to constitute additional “income” to the disabled beneficiary, which may affect either or both such person’s receipt of SSI and/or Medicaid benefits.


Curtis J. Shacklett
Barber & Bartz
525 S. Main Street, Suite 800
Tulsa, Oklahoma 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
E-mail: cshacklett@barberbartz.com

ARE RETIREMENT ACCOUNTS OF A SPECIAL NEEDS PERSON IGNORED BY SSA AND MEDICAID?

On several occasions I have been consulted by parents of adult disabled children who have worked and accumulated a retirement account via a 401k or 403b (provided by a non-profit employer) and have run afoul of SSA (Social Security Administration) or OKDHS (Oklahoma Department of Human Services-the state agency that determines Medicaid qualification) rules resulting in a disqualification of the receipt of continued benefits.

This is a trap for the unwary, since the rules allow for a person receiving SSI or Medicaid, to have a retirement account provided by his/her employer without the account’s existence, or the funds held therein (regardless of the amount), being deemed a “resource” to the worker. If deemed a “resource,” the retirement account might otherwise disqualify the worker from continued receipt of public benefits such as SSI and/or Medicaid. Parents, or guardians, or trustees assume that since the account was allowed and not deemed a resource for those years of employment, then such retirement accounts will always be deemed not a resource. Though this sounds logical, unfortunately, that is not the rule. There is some guidance (not as clear as we would like, sometimes) in the POMS (“Program Operating Manual System,” the SSA policy/rules providing guidance to the Social Security worker) as well as in the Oklahoma Administrative Code (“OAC”), the latter being promulgated by the Oklahoma Health Care Authority (the state’s Medicaid paying agency), dealing with retirement accounts and how they should be treated by those agencies when seeking to determine whether or not such retirement funds are no longer protected, i.e., no longer deemed a non-resource. The SSA rules (POMS) provide the following instructions:

“A retirement fund is not a resource if an individual must terminate employment in order to obtain any payment” (POMS-SI-01120.210 subsection C-1). However the same section in the POMS makes clear that if the individual worker could withdraw funds from the retirement account, that the value of the retirement fund is the amount of money that an individual can currently withdraw from the fund. This value is the amount left after the penalty deduction if any, but is not further reduced by any taxes that are then due based upon the withdrawal.

Similarly, the OAC contains the following “policy” provisions relevant to this issue:

“A retirement fund is not a countable resource if the applicant is currently working and must terminate employment in order to receive benefits” (OAC 317:35-5-41.7) [Emphasis added]

The policy for Medicaid benefits is worded very similarly to the SSI rule in the POMS. Thus the key appears to be that the retirement funds ARE treated as a resource for both SSI and Medicaid IF the individual, while working, has the right to withdraw funds from the retirement account for any reason permitted by the plan. Since many retirement plans do grant the employee the right to withdraw funds for certain reasons while remaining employed, it might go unnoticed to the employee or guardian, or trustee that such funds might be an excess “resource” to the individual thus hindering the continued receipt of either or both SSI and/or Medicaid.

CONCLUSION: It is thus important to remember for the benefit of a disabled worker who is receiving either or both, SSI and Medicaid, that upon termination of employment, steps should immediately be taken to withdraw and/or transfer the retirement account into a d4A special needs trust (sometimes called a Medicaid payback trust) OR withdraw the funds and find appropriate ways to spend down the funds to keep the child’s total funds and non-exempt assets at $2,000 or below. There may of course be income taxes due upon the withdrawal that will need to be taken into consideration, although frequently any tax withheld will be later received as a tax refund, depending of course on the worker’s tax circumstances. A guardian or trustee should inquire of the employer as to what exactly are the rights of withdrawal of the employee while the employee is still working. If the employee has a present right to withdraw from the retirement account, then it appears that the retirement fund would be treated as a resource thus creating the likelihood of disqualification of the employee from receipt of Medicaid and/or SSI.

If you find yourself facing this type of problem, please contact us as soon as possible so that appropriate steps can be taken in an attempt to preserve any SSI and/or Medicaid benefits.


Curtis J. Shacklett, OBA # 8101
Barber & Bartz
525 S. Main Street, Suite 800
Tulsa, Oklahoma 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
E-mail: cshacklett@barberbartz.com

CAN THE TRUSTEE OF A SPECIAL NEEDS TRUST EMPLOY A PARENT OF A DISABLED CHILD AS A CAREGIVER FOR THAT CHILD? (PART II)

(This is a follow up to a blog posted 2-14-12)

Since posting my last blog on 2-14-12, I received a response email from Mr. Travis Smith, Esq. assistant general counsel to the Oklahoma Department of Human Services as to the question posed in the heading of that and this blog post. Mr. Smith is the “go to” person with regard to questions affecting Medicaid qualification through DHS in Oklahoma. I quote his response in part:

“…OKDHS treatment of payments to parents of minors is not specifically addressed in the OAC[“Oklahoma Administrative Code”-the official administrative record that includes policies promulgated by the Oklahoma Health Care Authority controlling Medicaid qualification in Oklahoma]. “And how OKDHS treats any payment to any parent of a minor will be very fact dependent and that they [i.e. parents] should have [their] specific circumstances checked out [i.e., with legal counsel or with OKDHS] before they start making payments.”

He further stated that: “the trust corpus [of the special needs trust] would be available [i.e., treated as a resource thus disqualifying the child from continued receipt of Medicaid benefits] if the parent provides the kind of care that the NM case dealt with.” He is referring to a very significant New Mexico federal court case entitled “Steffan Hobbs vs. Marsha Zenderman, [et al], Secretary of the Department of Human Services.” The opinion was rendered in 2008 and affirmed on appeal to the tenth circuit [579 F.3d 1171, 1179 (10th Cir. 2009)], the same appellate court that hears cases from Oklahoma. The facts in the case evidence considerable free spending habits of the parents in using trust assets to pay for things that benefited the parents/family and not just the disabled child (i.e., violated the “sole benefit rule”). The parents used the trust funds also to pay the mother for care giving for their disabled/brain injured child. Although it appears that the parents may have taken advantage of the trust in paying for things that benefited the parents directly and indirectly, the court also noted that payments were made to the parent for services she “was already legally obligated to provide as a parent.” The door appeared to be somewhat left open for “skilled services” a parent might provide and examples given were “physical or other therapist” or performing “skilled services,” the latter not being defined.

So again, in conclusion a trustee, whether professional or parent, needs to seek legal advice before assuming that payments to a parent as a caregiver will be approved.

Curtis J. Shacklett, Esq.
Barber & Bartz
525 S. Main Street, Suite 800
Tulsa, Oklahoma 74103-4511
Telephone: (918) 599-7755
Facsimile: (918) 599-7756
E-mail: cshacklett@barberbartz.com

CAN THE TRUSTEE OF A SPECIAL NEEDS TRUST EMPLOY A PARENT OF A DISABLED CHILD AS A CAREGIVER FOR THAT CHILD?

I have been asked this question numerous times by professional trustees and parent-trustees of special needs trusts (“SNT”). The answer is: “it depends.”

First of all, an SNT established by a parent or other “third party” and not funded by assets belonging to the disabled person is not subject to the “sole benefit” rule that governs what are called “first party” SNT’s.  A first party SNT is one that is statutorily authorized and is established for the sole benefit of the disabled person and funded with assets/resources that belong to the disabled person.  This type of trust is a “Medicaid pay-back” trust and the assets contained in it are not treated as an available resource to the disabled person and thus do not hinder receipt of SSI and/or Medicaid.  However, these first party trusts (sometimes called d4A trusts) must be established for the “sole benefit” of the disabled person and no other person can be a co-beneficiary with the disabled person as long as the disabled person is alive.  It is this “sole benefit” rule that gets in the way of providing compensation to a parent as a caregiver.

Generally, the law requires a parent to care for his/her minor child (whether disabled or not) without any compensation for doing so.  Sometimes, however, if both parents are working, and in particular, if they are doing so because of economic necessity, it creates considerable hardship if substantial expense is incurred for specialized care-giving services for a live-at-home disabled child.  This may result in not much economic benefit to one of the parents for continuing to work, when much of the income from employment is spent on caregivers. In addition, a parent may feel (and often does) that he/she can provide far better care giving services to their disabled child than those they would otherwise hire to provide care.  Thus, two questions arise: (1) “Can I quit my job, stay at home with and take care of my disabled child, and be compensated from my disabled child’s Medicaid-payback SNT?”; and (2) “If, so, how much can I be paid?”

If the disabled child is an adult (i.e., of legal age-i.e. at least 18 years old), there is currently no requirement by SSA (Social Security Administration) or Medicaid to provide care and support for that child by the parent.  Thus, obtaining consent or approval by SSA or Medicaid for parental compensation from the SNT may be more likely to be approved (subject to considerable scrutiny by SSA and Medicaid).  However, if the disabled child is a minor, due to the legal obligation of support placed upon all parents, a parent obtaining consent to be compensated from a first party SNT is far less likely. In addition, because of the “deeming” of income rules by SSA the child may experience a reduction in his/her SSI benefits if the parent is paid from the SNT.  In the event the parent is approved to receive compensation from a first party SNT, in all events the parent could not be paid more than that charged by independent qualified/trained caregivers.  Further,  the parent may not be able to be paid for more than forty (40) hours per week since it will be assumed that the parent can provide care for the child on nights and weekends, etc.  Because the “sole benefit” rules are a potential hindrance to compensation to a care giving parent, and somewhat vague as to how they might apply to specific circumstances, we suggest you check with our office and discuss your particular circumstances before assuming that compensation from a first party SNT to a parent will be allowed. (also see SSA POMS: SSI 01120.201F)

Curtis J. Shacklett

Barber & Bartz

525 S. Main, Suite 800

Tulsa, OK 74103

(918)599-7755

cshacklett@barberbartz.com

TAXABLE INCOME VS. MEDICAID "INCOME" FROM A SPECIAL NEEDS TRUST

A common source of confusion for parents and trustees of a special needs trust is how distributions from a trust to or for the benefit of a disabled person will be treated by the IRS versus how will the Social Security Administration and the state Medicaid agency treat those very same distributions. Because not all distributions from a special needs trust are treated the same by those three agencies, trustees are often confused as to the consequences of making distributions. The following is some general guidance.

Basically, the general rule for IRS purposes is that actual distributions from the trust of taxable trust income to or for the benefit of the beneficiary will be treated as income to the beneficiary and reportable on his/her personal income tax return (if one is required) even if the distributions are not made directly to the beneficiary. (There may be certain exceptions too complex to discuss in this blog). However, only those distributions made in cash to the beneficiary, or sums paid to other persons, vendors, etc. for food, clothing, or shelter, will be treated as income for Medicaid purposes, and only those funds distributed for food, or shelter will be treated as income for Supplemental Security Income (SSI) purposes. Understanding this distinction is very important since excess “income” according to the SSI rules as well as Medicaid, may disqualify the disabled person from continuing to receive those public benefits. Thus, even if there is a lot of “income” from an IRS perspective, unless those distributions fall into the category of cash to the beneficiary, or are distributed for food, clothing or shelter needs, they will not constitute “income” for SSI or Medicaid purposes.

Feel free to contact us to discuss these details further.

Curtis J. Shacklett, Esq.