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.

PREPAID FUNERAL ARRANGEMENTS FOR A SPECIAL NEEDS TRUST PERSON

The Social Security and Medicaid rules prohibit payment of funeral expenses (after the death of the beneficiary) from a first party trust by the trustee (i.e. one that contains the assets of, or originally belonging to, the disabled person) prior to repayment to the state Medicaid agency. This is a dangerous trap for unwary trustees. There may be no other funds with which to pay for post death burial expenses outside of the assets in the trust. Thus, it is critical that the trustee arrange for payment of a burial plan PRIOR TO the death of the disabled individual. This requires that the burial arrangements be established with a reputable funeral service provider using fully prepaid contracts that are irrevocable. The funds held by or paid to the provider will not be treated as an available resource to the disabled person as long as the amount expended does not exceed $10,000.


See: OKDHS - OAC 317:35-5-41.2(f)

LIFECARE TRANSITION PLANNING FOR THE SPECIAL NEEDS CHILD

Most families that have a special needs (i.e., disabled) son or daughter collect a wealth of information about the special needs of that child, including information regarding medical care, educational issues, names of doctors, consultants, care-givers, special activities, and a host of other important bits of information that are critical to the ongoing care of their child.

However, experience with our clients has shown that, in spite of the parent’s good intentions, much of that information is held and remains “between the ears” of the parent rather than in one conveniently organized and well-documented format that would be readily available and transferrable to a successor guardian, caregiver, or Trustee for the disabled child in the event of the loss of life or disability of the parent.

We think it critically important that families with special needs children build a “Lifecare Transition Notebook” to contain such relevant and critically important information in a clear and well organized manner.  Such a notebook will be of priceless value to another family member or friend who takes on some responsibility for caring or overseeing care for the special needs child after the parent can no longer do so. 

In addition, providing a copy of the “Lifecare Transition Notebook” to the professional Trustee who may eventually assume responsibility for managing the Special Needs Trust will help the Trustee have additional and critical information to assist the Trustee in making critical investment or disbursement decisions involving the Trust.

We at Barber & Bartz can provide such a personalized “Lifecare Transition Notebook” to our clients, if requested, as part of the estate and special needs planning services that we provide.

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.