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

 

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/

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

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

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.

SPECIAL NEEDS LAW MONTH

The National Academy of Elder Law Attorneys (NAELA) has designated October as Special Needs Law Month.  Individuals with disabilities require specialized legal care due to their reliance on government benefits for their medical care and other daily needs.  Unfortunately, becoming eligible for government benefits can be a complex and daunting process.  Even after eligibility has been successfully obtained, due to the changing and evolving guidelines for maintaining eligibility for benefits, legal assistance is often still required.

However, families with a loved one with special needs don’t have to figure out the government benefits system alone; they can enlist the aid of attorneys with expertise in special needs law to assist them.  The designation of October as Special Needs Law Month helps to spread the word that there are knowledgeable legal professionals willing and able to help.

We hope you will join us this month in spreading awareness about Special Needs Law Month.  Any increase in the understanding and awareness can only serve to enhance the lives of disabled individuals, and their families.