ANOTHER TOOL IN THE TOOL BOX – The ABLE Act, an Overview

Recently Congress passed and the President has signed into a law a new form of investment account designed to provide a source for accumulation of funds to benefit a disabled person in a way similar to Section 529 accounts used for accumulating funds for qualified tuition programs. 

The “Achieving a Better Life Experience” Act (“ABLE” Act) is designed to benefit disabled persons specifically who are receiving Medicaid and/or SSI. 

The ABLE account is established as part of Section 529 of the Revenue Code and allows a disabled individual to maintain receipt of SSI benefits even though the SSI recipient has an ABLE account that contains assets up to but not exceeding $100,000.00.  If the account grows above that amount, the SSI benefits will be held in suspension until the account drops below $100,000.00, at which time the SSI payments will resume.

Likewise, a Medicaid recipient will not lose eligibility based on assets held in an ABLE account even if the size of the account exceeds $100,000.00.  However, similarly to a (d)(4)(A) trust, the ABLE account is subject to a Medicaid payback provision upon the death of the Medicaid recipient. 

An individual who is receiving SSI or disability benefits under Title II of the Social Security Act is eligible to use an ABLE account for “qualified disability expenses” which include:

·         Education

·         Housing

·         Transportation

·         Employment Support

·         Health and Wellness

The State must create the means to establish the ABLE Account (similarly to 529 accounts) and, although lawmakers have introduced bills, Oklahoma has not yet had time to get that completed.

The ABLE Account provides another relatively simple way of accumulating funds in a significant amount for the benefit of a disabled person, and once it is implemented by the states, it is a potentially useful tool in planning for the long term assistance for a disabled person.  It will take months before the details become clearer on how an ABLE account will work, but it may well be another tool in the estate planning tool box in serving individuals with disabilities.

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

Must a Trustee Charge Rent to an SSI and/or Medicaid Recipient?

In my blog post of May 3, 2012, I addressed a related and basic question “Can a Special Needs Trust Own a House for the Benefit of a Disabled Person Receiving SSI and/or Medicaid?” 

 This post will address the issue of charging rent to the beneficiary to avoid the loss of SSI and/or Medicaid.  The Social Security POMS set forth at SI 1120.200F speak to this issue as follows:

F.   Policy – Home ownership/purchase of a home by a trust

1.   Home as a Resource

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 or her own home based on having an “equitable ownership under a trust.”

 

If the trust is a resource to the individual, the home is subject to exclusion under SI 01130.100.

 

2.   Rent-free shelter 

An eligible individual does not receive in-kind support and maintenance (ISM) in the form of rent-free shelter while living in a home in which he or she has an ownership interest.  Accordingly, an individual with “equitable home ownership under a trust” (see SI 01120.200F.1.) does not receive rent-free shelter.  Also, because we consider such an individual to have an ownership interest, payment of rent by the beneficiary to the trust has no effect on the SSI payment.  (Emphasis supplied.) 

In the past, the Oklahoma Medicaid program required the Trustee to charge rent to the Medicaid beneficiary in order to avoid the potential loss of Medicaid benefits due to the “receipt” of [phantom] income in the form of free rent.  The “phantom” income would be equal to the fair market rental rate of the dwelling.  However, this rule has been recently changed to follow the same rule as the POMS.  Thus, a Trustee will no longer be forced to charge rent to a disabled beneficiary living in a dwelling held by a trust that was established for the beneficiary.  However, payments by the trust of certain household expenses, will still be deemed “income” to the Medicaid and/or SSI recipient.  Examples of such “household costs” include mortgage payments, real property taxes, and utilities.  However, the Oklahoma Medicaid program does not consider phone, cable TV, internet access, satellite TV, etc., as utilities, and payment of those expenses by a trust for the benefit of a beneficiary will not be treated as “income” to the beneficiary. 

SI 1120.20F.3.C. of the POMS states:

If the trust pays for other shelter or household operating expenses, these payments would be income in the form of ISM (“In-Kind Support and Maintenance”) in the month the individual has use of the item (see SI 00835.350).  Countable shelter expenses are listed at SI 00835.465D (and include such expenses as mortgage payments, real property taxes, and utilities).  [emphasis added] 

If the trust pays for improvements or renovations to the home [owned by the trust], e.g., renovations to the bathroom to make it handicapped accessible or installation of a wheelchair ramp or assistance devises, 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.  (See SI 01120.200E.1.c.) [emphasis added]

In addition to the list of “household costs” recited in the POMS section cited above [SI 00835.465D], there is also this: 

NOTE:  Condominium fees in themselves are not household costs.  However, condominium fees may include charges which are household costs (e.g., garbage removal).  To the extent that such charges are identifiable, use them in the computation of inside and outside ISM.   

However, if the house is not owned by a trust for the benefit of the Medicaid beneficiary but instead by a third party (e.g., parent, sibling, or non-related party) payment of rent by the trustee will be deemed income to the SSI/Medicaid recipient and will likely affect and may cause a loss of those benefits.  Each case must be evaluated carefully so that interference with receipt of public benefits does not occur. 

 

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

 

The Importance of Flexible Trust Provisions to Accommodate a Beneficiary’s Uncertain Future

SCENARIO:

A grandparent’s trust for a grandchild contains a discretionary distribution provision as to the principal of the trust, but also contains a compulsory distribution provision of a fixed sum each month, to be distributed directly to the beneficiary.

PROBLEM:

As it turns out, the grandchild reached young adulthood with a disability that hinders the grandchild from being gainfully employed or obtaining additional education.  The grandchild is able to qualify for Social Security Disability benefits (based upon a deceased parents’ work record) and receives Medicaid benefits.  However, as a result of the grandparent’s death and implementation of the funding of the disabled grandchild’s trust, due to a combination of the Social Security payments when added to the compulsory trust distribution each month, the disabled person will now lose valuable Medicaid benefits due to too much income being received by the disabled grandchild.  Although receipt of Social Security Disability payments are not affected by the compulsory cash payments from a Trust, Supplemental Security Income (SSI), as well as Medicaid, are impacted by the compulsory distributions and would likely be lost if the compulsory payments from the trust were large enough to affect those benefit programs.  While some courts might entertain a request that the trust be reformed or modified so as to remove the compulsory distribution requirement, other judges may be philosophically opposed to doing so, seeing such efforts by lawyers as “Medicaid planning at the taxpayers’ expense.”

SOLUTION:

Thus, now more than ever, because a beneficiary may become disabled after a trust was drafted, which may have contained compulsory distribution provisions, and if the creator of the trust is deceased and cannot modify his/her trust document, trusts should be written with flexible provisions, preferably with no compulsory distribution provisions at all but only discretionary distribution provisions.  This will protect the beneficiary from loss due to creditors (in many or most cases) as well as avoid causing the loss of currently received, or future receipt of, public benefits, such as SSI (Supplemental Security Income) and/or Medicaid, or other forms of public benefits.

 

Sometimes a trust may contain provisions for internal modifications or amendment to be performed by the trustee, or someone such as a trust protector.  Such after-the-fact power to modify is becoming increasingly important to enable a trust document to be adjusted to meet a change of circumstances among beneficiaries or simply to correct an oversight or unwise provision.  It is impossible to foresee every beneficiary’s circumstance, so document flexibility is ever more critical to avoid expensive judicial reformation--which might not always be achieved, even if sought.

 

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

CAN SUPPORT ALIMONY BE PAID TO A SPECIAL NEEDS (MEDICAID PAYBACK) TRUST IN ORDER TO PRESERVE OR OBTAIN MEDICAID BENEFITS?

Occasionally a married adult suffers a serious injury or develops a mental or physical disability resulting in the need for pursuit of Medicaid assistance, especially long-term care benefits. Sometimes the nondisabled spouse decides to opt-out of the marriage by means of divorce proceedings. In a longer term marriage, support alimony may be awarded to the disabled now ex-spouse. The receipt of income to the disabled ex-spouse may result in a failure to qualify (or remain qualified) for Medicaid benefits. However, if those support alimony payments are ordered by the court to be paid by the obligor/spouse to the trustee of a (d)(4)(A)* special needs (Medicaid pay back) trust, the payments of the support alimony will not be deemed income to the Medicaid applicant who is the beneficiary of the special needs (Medicaid payback) trust and, thus, will not interfere with the disabled ex-spouse obtaining or retaining Medicaid benefits.

One very important caveat, however, is that, pursuant to Oklahoma DHS rules, the divorce proceedings must be bona fide, that the property division and support alimony, etc., must be fair and not some agreed-upon attempt to leave the disabled spouse with less than his or her equitable share of the marital estate, and that any support alimony payments are, in fact, ordered by the court to be paid to the special needs trust.

 

* a (d)(4)(A) trust beneficiary must be less than 65 years of age at the time of establishment of the trust.

 

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