special_needs_trust_original independent project ii

Executive Summary Special Needs Trust Document Ms. Montgomery

Ms. Montgomery

Special Needs Trust Document

March 9

2015By Keturah Holmes

Table of Contents Special Needs Trust Document Ms . Montgomery

Table of ContentsEXECUTIVE SUMMARY................................................................................................................................ iiiINTRODUCTION...........................................................................................................................................1THE PROBLEM.............................................................................................................................................2

Disability in America................................................................................................................................2

Definition.............................................................................................................................................2Number of Disabled Americans...........................................................................................................3Disability and Employment..................................................................................................................3Disability and Poverty..........................................................................................................................3Costs Associated with Disability...........................................................................................................3Assistance Offered to Disabled Individuals..........................................................................................4

Medicaid Program...................................................................................................................................5

Overview of Medicaid..........................................................................................................................5

Medicaid Eligibility in Minnesota.............................................................................................................6

Disabled Adults....................................................................................................................................6Employed Disabled Adults...................................................................................................................6Other MN Programs for Disabled........................................................................................................7

Assets Under Medicaid............................................................................................................................8

Asset Limits and Guidelines.................................................................................................................8Transfer of Assets................................................................................................................................8Disabled Individuals and Asset Transfers.............................................................................................9

DEVELOPMENT OF SOLUTION...................................................................................................................11

Trusts as Solution for Disabled Individuals............................................................................................11

Definition of Trust..............................................................................................................................11

OBRA ‘93................................................................................................................................................13

Trust Use Prior to OBRA 1993............................................................................................................14

Supporters for OBRA '93........................................................................................................................14

Testimonies.......................................................................................................................................14Other Supporters...............................................................................................................................15

Final Draft of OBRA ‘93 Section 1396p..................................................................................................15

IMPLEMENTATION OF SOLUTION..............................................................................................................17

Issues Evolving from OBRA ‘93..............................................................................................................17

i

Table of Contents Special Needs Trust Document Ms . Montgomery

Establishment of Pooled Trust...............................................................................................................17Lack of Management Direction for Pooled Trusts.................................................................................17

Expenses of Pooled Trusts.................................................................................................................18

Monies Owed the State After Death of Beneficiary...............................................................................18State Interpretations of Trusts..............................................................................................................18

SUCCESS OR FAILURE?...............................................................................................................................20Bibliography...............................................................................................................................................22Implementation of Solution.......................................................................................................................22

Issues Evolving from OBRA ‘93..............................................................................................................22Establishment of Pooled Trust...............................................................................................................22Lack of Management Direction for Pooled Trusts.................................................................................22

Expenses of Pooled Trusts.................................................................................................................22

Monies Owed the State After Death of Beneficiary...............................................................................22State Interpretations of Trusts..............................................................................................................22

Appendix A................................................................................................................................................23Resources..................................................................................................................................................25

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Table of Figures Special Needs Trust Document Ms. Montgomery

Figure 1........................................................................................................................................................5Figure 2......................................................................................................................................................22Figure 3......................................................................................................................................................24


EXECUTIVE SUMMARYDisabilities occur in all people at all ages for a variety of reasons. For the purpose of this

research, the focus will be on adults ages 21 to 64 who are acknowledged as having a disability

as defined by the Social Security Administration (SSA). Depending on the severity of the

disability, individuals often require extra medical services, equipment, and care. With these

additional necessities also come additional expenses, which consist of both direct and indirect

costs to the individual and their family. In order to provide the necessary care for the disabled

person, assistance with medical expenses is crucial to his/her well-being and quality of life.

However, government-funded health care assistance, also called Medicaid, has both income and

asset restrictions. If the disabled individual or spouse has assets or income that exceeds

restrictions, then Medicaid eligibility may be denied. The 21 to 64 age group was chosen due to

the absence of income and asset restrictions when determining a child’s eligibility for Medicaid

and to negate the extreme technicalities and restrictions when referring to ages 65 and older.

Trusts act as a tool for sheltering assets and income. A trust allows the disabled to still

acquire the benefits of Medicaid and other government-funded medical programs, but also

provide a supplemental income for other life expenses. A trust is also a significant component to

a disabled individual’s financial situation if they earned a settlement or received an inheritance.

If these funds were not put in a trust, the individual would not be eligible to receive Medicaid.

The Omnibus Budget Reconciliation Act of 1993 (OBRA ‘93) created a law that stated trusts set

up for disabled individuals would not be counted toward their income or assets, as long as the

trusts were set up according to specific guidelines. These trusts are called Special Needs Trusts,

iv


Supplemental Needs Trusts, and Pooled Trusts, each of which has specific, varying

characteristics. By allowing disabled adults to transfer assets into these trusts, it allows them to

receive government-funded health care and supplemental income to help with other expenses.

v


INTRODUCTIONThe research is separated into four parts, each leading to another stage of addressing the

issues facing disabled adults when applying for Medicaid. First, the research explains the

problems associated with disabled individuals’ extensive medical expenses and asset and income

restrictions. Next, the concept of trusts and the development of OBRA ‘93 Section 1396p are

discussed. And, the parties and testimonies that helped establish trust exemptions for disabled

individuals are addressed. Third, the issues that evolved with enforcing OBRA ‘93 Section

1396p will be brought to the surface. And, lastly, an evaluation of the success or failure of

OBRA ‘93 in regards to helping disabled adults receive quality medical care while also

preserving assets and acquiring needed supplemental income will be provided.

1

The Problem Special Needs Trust Document Ms. Montgomery

THE PROBLEM

Disability in America

Definition. The definition of “disability” is based on the criteria used for the Social Security

Administration (SSA) for the Supplemental Security Income (SSI) Program. The law defines

disability as “the inability to engage in any substantial gainful activity by reason of any

medically determinable physical or mental impairment(s) 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.” 1

A “medically determinable physical or mental impairment” is defined as “an impairment

that results from anatomical, physiological, or psychological abnormalities which can be shown

by medically acceptable clinical or diagnostic techniques.” It continues to state that “a physical

or mental impairment must be established by medical evidence consisting of signs, symptoms,

and laboratory findings – not only the individual's statement of symptoms.” 2 There is an

extensive list of diagnoses that fall under the definition of disability in the Social Security Act,

which can be found on the SSA’s website. Determinations of disabilities are processed through

local Social Security field offices and state agencies and require lengthy evaluations and

professional medical advice. 3

1 (Social Security Administration, 2008)2 (Social Security Administration, 2008)3 (Social Security Administration, 2008)

2


Number of Disabled Americans. As of 2010, there were 54 million people who have a disability, which represents 19

percent of the civilian non-institutionalized population. By age, 5% of children ages 5 to 17, 10%

of people 18 to 64, and 38% of adults 65 or older have disabilities4 .

Disability and Employment. According to the U.S. Census, 46% of people ages 21 to 64 who have some type of

disability are employed. For those without a disability, the employment rate is 84% for the same

period 5.

Disability and Poverty. The median income for people ages 21 to 64 with a non-severe disability is $2,250 and

$1,458 for those with a severe disability. The median income earnings for people within this age

range with no disability are $2,539. For those with severe disability, the poverty rate is 27%. For

those without a disability, the poverty rate is 9%6 .

Costs Associated with Disability. Expenses incurred by disabled adults include both direct and indirect costs. Direct costs

include family expenditures; health care; therapeutic, behavioral, or educational services;

transportation; equipment; caregivers; and other special services needs either in-home or

community-based. Indirect costs consist of lost human capital and lost earnings for the disabled

individual7 . One article, which was based on disabled children’s estimated cost, reported the

average annual cost to be $30,500. This amount would be similar to adults, since it does include

loss of income and other medical necessities disabled individuals require. According to the

4 (Census, 2010)5 (Census, 2010)6 (Census, 2010)7 (Stabile, 2012)

3


nonprofit organization United Spinal8 , the costs for disabled people who need specialized care

can reach $224,000 per year. Of this amount, medications and supplies were $25,000, home

renovations were $15,000, and caregivers averaged between $11,000 and $21,000 per year.

Since there are so many types of disabilities, it is difficult to offer specific costs and expenses.

However, it is evident that disabilities cause extreme financial burden to families and disabled

individuals. Due to the substantial costs associated with a disability, medical assistance of some

form is a necessity for the individual and family to supplement expenses and income.

Assistance Offered to Disabled Individuals.

8 (The Costs Of Being Disabled)

4


Assistance programs are offered through the state and federal systems. The medical

assistance program is called Medicaid; however there are income and asset restrictions, which

vary on a state to state basis. The federal programs for disabled adults are called Social Security

Disability Insurance (SSDI) and Social Security Income (SSI). SSDI are available for disabled

individuals who worked long enough and paid social security taxes. SSI is available for disabled

individuals, but is based on financial need. According to the Social Security Administration

(2012), 4.8 million people between the ages of 18 and 64 collect SSI. The average payment is

$517 per month to the disabled participant. About 25% of all SSDI participants are between

ages 18 and 64. The average SSDI payment for qualifying disabled workers is $1189 per month.

Spouses and children also qualify for a payment under SSDI; both receive an average of $306

per month as well 9. If disabled individuals were to receive both SSDI and SSI, the amount of

$20,472 per year still does not even come close to the average costs per year associated with a

disability.

9 (Social Adminstration 2012)

5

Medicaid ProgramOverview of Medicaid

Medicaid Eligbility in Minnesotadisabled Adults

Assets under MedicaidAssets limits and Guidelines


Figure 1

Medicaid Program

Overview of Medicaid. Medicaid was established in 1965 as a joint venture between federal and state

governments. The program is outlined in Title XIX of the Social Security Act. The purpose of

Medicaid was to provide medical assistance to families and individuals with low incomes10. It is

managed and overseen at the federal level through the Department of Human Services, but each

state administers their own programs through an appointed agency, which differs from state to

state11 .

Medicaid is funded partially with federal funds and partially with state funds12.

Participation in the Medicaid program is voluntary; however, all fifty states and the District of

Columbia do participate. Every participating state is required to provide medical assistance to the

“categorically needy.” These categories consist of: pregnant women, children and teenagers,

people 65 years of age and over, blind or disabled, and others deemed eligible due to high

medical expenses or low income. Other services in addition to ones serving these categories are

at the state's discretion13 .

According to the Social Security Administration14 , “Within broad national guidelines

established federal statutes, regulations, and policies, each state establishes its own eligibility

standards; determines the type, amount, duration, and scope of services; sets the rate of payment

10 (Title XIX-Grants to States For Medical Assistance, 2012)11 (D., 2006)12 (J.D)13 (D., 2006)14 (Title XIX-Grants to States For Medical Assistance, 2012)

6


for services; and administers its own program.” Income eligibility levels are also determined by

the state, and states can choose to extend coverage to the “medically needy” as well 15.

Medicaid Eligibility in Minnesota

Disabled Adults. All disabled individuals must meet the disability standards by SSA or the State Medical

Review Board (SMRB). The asset limit to qualify for Medical Assistance (the Minnesota state

Medicaid program) is $3000 for a household of one and $6000 for a household of two. For each

additional household member, an additional $200 applies. The income limit is 100% Federal

Poverty Guideline (FPG). If one's income is over 100% FPG, then they must meet 75% FPG

after “spenddown,” which means they spend down their income to that level by paying medical

expenses. For a household of one, the monthly income limit is $931; and, for a household of two

it is $1,26116. The full chart can be found in Appendix A.

Employed Disabled Adults. For disabled adults who are employed, the eligibility criteria changes. Their medical

assistance program is called MA-EPD. For this program, the asset limit is $20,000 and excludes

retirement accounts, Health Savings Accounts set up through an employer, and spousal assets,

including the spouse’s share of jointly held assets. In regard to income, there is no upper limit

income for MA-EPD. Enrollees, however, must have received wages from employment of self-

employment, and the average monthly earned income must be over $65. In order for income to

be considered “wages,” the individual must be paying applicable state and federal income taxes,

15 (D., 2006)16 (J.D)

7


along with Medicare and Social Security. These rules only apply to employed disabled adults

who are under age 6517.

Other MN Programs for Disabled. There are a number of other programs available to disabled adults that act in conjunction

with or in place of MA. These are: Community Alternative Care (CAC), Community

Alternatives for Disabled Individuals (CADI), Developmental Disabilities (DD), and Brain

Injury (BI) Waiver.

These are programs for home and community-based services for those who are

chronically ill and are under age 65. After going through a required consultation and assessment,

the individual must be found to need a greater level of care, such as the hospital, nursing home,

Intermediate Care Facility for the Developmentally Disabled, or a specialized facility for brain

injuries. Instead of being provided the higher level of care, the individual chooses community-

based services. These services must cost less for MA versus the costs of the higher-care-level’s

facility. Standard income guidelines apply, and the asset limit is $3,000, since only the assets of

the applicant are considered. In these particular programs only, assets can be transferred to a

spouse without being imposed a penalty. These types of programs are offered only in situations

where medical needs exist that are not covered under regular MA18 .

Assets Under Medicaid

Asset Limits and Guidelines. There are two methods to determine asset limits for Medicaid. These are called Method

A and Method B and are based on household size. Method A is for parents and caregivers. For a

17 (J.D)18 (J.D)

8


household of one, the asset limit is $10,000; and, for a household of two or more, it is $20,000.

Method B establishes the asset limits at $3,000 for a household of one, $6,000 for a household of

two, and $200 for each additional member of the household. Method B applies to the disabled

and individuals on waiver programs. However, if Method A is more beneficial to the disabled

individual, then Method A overpowers Method B. Disabled individuals who are working always

have an asset limit of $20,000. However, the spouse’s assets are not counted19 .

For example, Jim and Betty are married and both applying for health care. They have a

son, Mike (age 10). Mike lives with them, but he is not applying for health care. Betty is

pregnant, and Jim is disabled according to the SSA’s definition. Jim’s household consists of four

people, which includes the unborn child. He may choose to use Method A, since he is a parent.

In this option, the asset limit would be $20,000. Both his and his wife’s assets are considered. If

he chooses option B, since he is disabled, the asset limit would be $6,200. Therefore, Jim’s asset

limit would be $6,200, which is the lower of the two.

Transfer of Assets. A transfer is said to occur “when a person or person’s spouse gives away, sells, conveys

ownership, and/or reduces control of any asset or income or an interest in an asset or income” 20.

Asset transfers are important when determining Medicaid eligibility, since asset limits are a

significant part of establishing eligibility.

If a Medicaid applicant who is in need of long-term care services transfers assets in order

to meet the asset limit, there could be a penalty imposed on that person. Examples of transfers

include: “transferring an interest in a life estate to another person, annuitizing an annuity,

transferring assets or income to a client-funded trust, assigning the right of an income stream to

19 (J.D)20 (J.D)

9


another person, reducing or eliminating ownership or control of income or assets held in

common with another person or persons, and placing an asset into joint ownership with another

person thereby reducing or eliminating ownership, interest, control, or right to sell or dispose of

an asset” 21. Another example of transferring assets is refusing to accept an inheritance. A

transfer also takes place when “a person purchases personal care or other types of services,

personal or real property, or an interest in a financial arrangement such as a promissory note,

loan, or mortgage”22 .

Disabled Individuals and Asset Transfers. Three reasons why disabled individuals may have a need for asset transfers are

inheritance, lawsuit settlement, or a parent or grandparent wanting to put away money for the

disabled individual to help with financial expenses. For example, a mother dies and leaves

$50,000 to her non-disabled son. As the beneficiary, he can choose to put the money in various

places, whether it be an investment account, savings account, annuity, etc. Five years later, the

son becomes victim of a work-related injury, where he fell from a building due to improper

safety enforcements. He is now in a wheelchair, has extensive medical expenses, and is defined

as “disabled” according to SSA’s criteria. The $50,000 his mother left him counts toward his

asset limits when applying for Medicaid benefits. The son also decides to sue his employer for

the injury and is awarded a settlement of $500,000. He now has $550,000 in countable assets (or

more depending on his other financial accounts), which will make him ineligible for Medicaid.

However, because of the severity of his disability, costs will run him an average of $200,000 per

year for medical and other care services. He will have to spend all of his assets down to the

21 (J.D)22 (J.D)

10


$3000 asset limit (assuming he has a household of one) before qualifying for Medicaid. This

will leave him nothing for supplemental income for the remainder of his life.

Trusts, which will be explained next, offer a way for the son to transfer his assets into a

sheltered account, which will make those assets “unavailable.” This will allow him to qualify for

Medicaid assistance and take distributions from the assets in his trust for supplemental income.

Even though this method has been used for several years, an Act in 1993 put into law, which

stated that certain trusts are exempt from asset limitations when determining Medicaid eligibility.

11

Development of Solution Special Needs Trust Document Ms. Montgomery

DEVELOPMENT OF SOLUTION

Trusts as Solution for Disabled Individuals

Definition of Trust. A trust is “a legal document establishing an agreement whereby an individual transfers

liquid or non-liquid property (the trust corpus) to another person or entity (the trustee) with the

intention that the asset be held, managed or administered by the trustee for the benefit of one or

more beneficiaries”23. The beneficiary of the trust is the person who is to receive the benefit. For

example, a trust may hold funds for minors or disabled adults and are managed by a parent or

grandparent. They have been used as a tool to shelter income and assets in order to qualify for

Medicaid eligibility, making assets under the trust “unavailable” to the beneficiary. When assets

are deemed “unavailable,” then they are not counted toward the asset limits. Trusts also have

been used for tax and estate planning purposes.

Types of Trusts. There are several types of trusts available. When looking at transfers of

assets, each trust has its own characteristics and is treated differently when determining Medicaid

eligibility.

There are common trusts that are used for a variety of estate planning and tax purposes.

These are Client-Funded Trusts, Medicaid Qualifying Trusts, and Third-Party Established Trusts.

A Client-Funded Trust is funded with the income and/or assets of the client or client’s spouse.

The Medicaid Qualifying Trust (MQT) was a trust used prior to August 11, 1993. It is also

funded with the income of the client or client’s spouse. And, third-Party Established and Funded

23 (J.D)

12


Trusts are funded by a third-party either during the life of the third-party or at his/her death 24.

There are various types of third-party trusts that are used, which vary mostly due to the amount

of discretion given to the beneficiaries25 .

In addition, there are trusts that are specifically set up for disabled individuals. These are

Special Needs Trusts, Pooled Trusts, and Supplemental Needs Trusts. Special Needs Trusts are

created for the sole benefit of a disabled individual who meet the SSA definition of “disabled” at

the time the trust is established. It must be created by a parent, grandparent, or court. The

disabled individual must be under age 65 at the time of trust creation, and it must be funded

either completely or partially with the assets of the disabled individual.26

A Pooled Trust is managed by a non-profit organization and has sub-accounts created for

the benefit if the disabled individuals. It can be funded in whole or in part by the income or

assets of the individual. There are no age restrictions for Pooled trusts27 .

Supplemental Needs Trusts are funded by a third-party, such as a grandparent, during

his/her life or upon his/her death. It cannot include funds of the disabled person or his/her

spouse. The beneficiary of the trust is a disabled individual, according to SSA’s definition of

disability. Establishment of the trust must have been after the time the person was deemed

disabled, not before. The purpose of this trust is to supplement public benefits, but not replace

them 28.

A Zebley Trust is in its own category. It is only funded with payments made to the client

by SSA. This trust was created due to a Supreme Court Decision in the case of Sullivan v.

24 (J.D)25 (D., 2006)26 (J.D)27 (J.D)28 (J.D)

13


Zebley in 1990. For Medicaid purposes, this can fall into the Special Needs Trusts category if

the beneficiary is disabled 29.

OBRA ‘93

The Omnibus Budget Reconciliation Act of 1993 (OBRA ‘93) is a very lengthy Act that

covers many topics, including Medicaid eligibility and asset transfer guidelines. It was this Act

that eventually wrote into law that the use of specific trusts for disabled individuals is exempt

from asset limits when determining Medicaid eligibility. Before this law, there was no written

statute that offered exemption for only disabled individuals.

Certain sections of OBRA ‘93 were drafted in response to the perceived abuse of

Medicaid by people over the age of 65 and Clinton’s proposal to reduce the 1994 federal budget

for health care programs by $7.8 billion. However, for purposes of this research, this subject will

only be touched on briefly30 .

The three trusts that were declared exempt from asset limits are specified and described

in Section 1396p. They include Special Needs Trusts, Supplemental Needs Trusts, and Pooled

Trusts. Any other trust funds would be counted as “available” with very few exclusions31.

Due to asset limits and transfer of asset restrictions, it is vital that disabled individuals

transfer their assets into one of these three trusts. As stated previously, once transferred, the

funds in these trusts are not considered in the income or asset limits, and the disabled individual

would be thus eligible for Medicaid benefits. This is a privilege given solely to disabled people.

OBRA ‘93 also enforced look-back periods, which is a certain length of time after

transferring assets that an individual does not qualify for Medicaid. However, this does not

29 (J.D)30 (D., 2006)31 (J.D., 2012)

14


apply to exempted trusts, as long as the individual was disabled when the transfer into the trust

occurred 32.

Trust Use Prior to OBRA 1993. Before the federal government began recognizing pooled trusts and supplemental needs

trusts in 1993, families of disabled children were using them to provide for the child after the

parents’ death and to prevent ineligibility for Medicaid due to income and asset restrictions 33.

The first pooled trust was created in the 1950s by an organization called the National Association

of Retarded Citizens. They are now known as The Arc and have several state and local chapters.

Parents of disabled children pooled their assets as a way to minimize administration costs and

maximize profitability. Many of these trusts remained intact after OBRA ‘93 and served as a

model for the pooled trust exemption under the act 34.

Supporters for OBRA '93

Testimonies. Elizabeth Boggs, Ph.D., member of The Arc Governmental Affairs Committee, spoke in

front of the House of Representatives’ Ways and Means Committee. She urged Congress to

include exemptions of trusts for the disabled. Boggs “indicated the importance of supplemental

resources to people with disabilities, noting that Medicaid and SSI benefits typically fall short of

meeting their financial needs.” She went on to say that “these trusts become the only source of

supplemental funds after the death of a parent, guardian, or other caregiver,” and a pooled trust

may be the only option for people who either cannot designate a trustee or do not have sufficient

funds to establish a trust of their own35 . Congressman Henry Waxman has been credited with

32 (J.D., 2012)33 (D., 2006)34 (D., 2006)35 (D., 2006)

15


the inclusion of the three exempt trusts. 36. He is a Congressman for California, who works

extensively with Medicaid law.

Other Supporters. It is important to recognize the other two significant supporters of OBRA ‘93. Even

though the age group of 65 and older is not being covered in this research, the elderly were the

main reason for the drafting of the asset transfer section in the Act. Long-term care insurance

companies were urging the government to tighten restrictions on long-term care for individuals

65 and older. Since eligibility rules had changed due to the Medicaid Catastrophic Coverage Act

of 1988, more people ages 65 and over qualified for Medicaid coverage. This, however, affected

the amount of enrollments in long-term care insurance policies 37. Other supporters were of

course the state Medicaid agencies, who also were urging the federal government to reduce the

budget on long-term care programs.

Final Draft of OBRA ‘93 Section 1396pThe following paragraph is a very small portion of the finalized OBRA ‘93, specifically

Section 1396p (4)(d),which pertains to the trust exemptions for disabled individuals.

“(A) A trust containing the assets of an individual under age 65 who is disabled 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 subchapter.”

“(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 36 (D., 2006)37 (D., 2006)

16


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 sub-chapter; and (iii)the State makes medical assistance

available to individuals described in section 1396a(a)(10)(A)(ii)(V) of this title, but does not

make such assistance available to individuals for nursing facility services under section 1396a(a)

(10)(C) of this title.

“(C)A trust containing the assets of an individual who is disabled that meets the

following conditions: (i)The trust is established and managed by a non-profit 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 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 subchapter” 38.

By reading through the statutory language, it is evident that the language is quite simple

and leaves some items open for interpretation. As noted above, OBRA ‘93 also added the

requirement for two of the three trusts to list the beneficiary as the state. These monies would be

used to pay back the state for Medicaid costs for the disabled individual.

38 (J.D., 2012)

17

Implementation of Solution Special Needs Trust Document Ms. Montgomery

IMPLEMENTATION OF SOLUTION

Issues Evolving from OBRA ‘93 Many issues surfaced when implementing OBRA ‘93, especially in relation to the pooled

trusts. Several of these issues are still unresolved, since the wording of this section has not been

changed since this section of the Act was produced in 1993. These issues include the terms of

establishing the pooled trust, management of the pooled trusts, extensive expenses of pooled

trusts, amount of money retained before state’s acquisition of funds after the death of the

beneficiary, and the vast methods of state interpretation of the vague language.

Establishment of Pooled Trust. In the language of the Act, it is unclear “under what circumstances a trust may be established

either by the beneficiary himself or by a court”39 . The pooled trust allows for the disabled

individual to create his/her own pooled trust; but, due to the vagueness, it seems as though this

rule applies to all disabled adults and no restrictions are present as far as absence of trustees,

parents, or caregivers.

Lack of Management Direction for Pooled Trusts . As stated, the pooled trust is to be established and managed by a non-profit

organization; yet, there are is no further direction as to how the trusts and investments can be

managed. It is unclear whether “the nonprofit organization must exclusively establish and

manage the trust, or if it may delegate some of the burdensome tasks to other organizations or

corporations, as many organizations currently do.” Furthermore, the Act “does not reveal any 39 (D., 2006)

18


restrictions on the nonprofit organization’s role in... running the trust, on investing the trust’s

pooled principal, or even on divestment procedures”40

Expenses of Pooled Trusts. The statute also does not address the financial expenses incurred by the non-profit organization

that establishes and manages the trusts and investments. In order to establish a pooled trust, the

nonprofit must provide the financial resources to establish the trust or a new nonprofit would

have to be created for the sole purpose of managing the pooled trust. Estimated costs to

establishing a pooled trust could reach $150,000. In order for a pooled trust to run, a bank must

be involved to invest the trust funds, attorneys need to prepare all documents and agreements,

staff must be either hired or trained to manage the trust principal and the distributions to the

beneficiary, and one must be financially competent on investment procedures and strategies to

keep the funds earning interest. It is quoted that the trust manager of a pooled trust “is expected

to be the Mother Teresa with an M.S.W., M.B.A., and J.D.”41.

Monies Owed the State After Death of Beneficiary. According to the statute, the pooled trust is the only trust that allows the beneficiary to retain

some assets upon death versus giving 100% of the remaining assets to the state. However, there

are no clear amounts or restrictions on what the funds must be used for or how much can be

retained before distribution to the state 42.

State Interpretations of Trusts .

40 (D., 2006)41 (D., 2006)42 (D., 2006)

19


Some of these issues “have been addressed either by differing interpretations by state

Medicaid agencies or by courts,” 43 which leaves the statute open to various interpretations. Due

to the ambiguity of OBRA ‘93, states have imposed restrictions on the operation of pooled trusts,

which vary greatly on a state to state basis. These restrictions may inadvertently disqualify a

disabled adult for Medicaid, when, based on the federal statutory language, they are indeed

eligible for government benefits. The only “substantial check on state rules is federal

preemption, which, as reinforced in the federal Medicaid statutes, keeps states from

implementing requirements that are more restrictive than federal rules.” However, “many state

rules are likely permissible due to the vague language of the statute” 44.

43 (D., 2006)44 (D., 2006)

20

Success Or Failure? Special Needs Trust Document Ms.Montgomery

SUCCESS OR FAILURE?

Based on the research compiled, there are both successes and failures to establishing

Section 1396p of OBRA ‘93. Successes include increasing awareness of the trust option to the

general disabled population and families, enforcing by law the exemption of Special Needs

Trusts, Pooled Trusts, and Supplemental Trusts, and increasing the number of disabled

individuals who are eligible for Medicaid.

On the other hand, this statute also has failures. These include careless drafting and

vagueness in language, payback stipulations upon the death of the beneficiary, expenses of trusts,

and state variances in interpretation and guidelines.

Pooled trusts are a huge benefit to people with disabilities, since they do not need an

available trustee and the trust can be set up by the disabled individual. Due to the substantial

costs, time, and resources involving managing a pooled trust, there are limited organizations that

offer pooled trusts. The Arc in Minnesota is one of the few that actually have established and

manage their own pooled trust. If there were more incentives for non-profit organizations to

establish pooled trusts, the disabled population would have more options.

Payback stipulations were added to two of the three trusts in response to estate recovery

sections in OBRA. Even though there are good reasons for states to be reimbursed some

Medicaid costs, this part of the statute is extremely detrimental for the family left behind. For

example, if a husband is disabled and married with two kids, there are no funds that can be left

behind to help with living expenses and provide for the rest of the family. There are benefits for

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Success Or Failure? Special Needs Trust Document Ms.Montgomery

widows of disabled adults; but, like other government cash assistance programs, it is insufficient

for life’s costs.

It is important to also consider the expenses to establish a trust on one’s own, such as a

Special Needs Trust and Supplemental Needs Trust. It requires an attorney and attorney fees to

create the trust and agreements, fees in order to invest funds and manage them, and taxes that

accrue from gains that need to be paid on an annual basis. If these exemptions were made to

truly help disabled people, and considering how many are living at poverty levels, other financial

assistance programs should be enforced to help with the initial and ongoing trust costs.

Lastly, the vagueness of language left the statute wide open for various interpretations by

the states. Some states, like Georgia, even put limits on the amount of assets one can have in a

pooled trust 45. It is important and necessary that the state has freedom to set some boundaries

and make some decisions; however, it should not negate the fact that these trusts have been

established to provide higher-quality lives to disabled people.

Overall, when focusing on the particular sections of 1396p (d)(4)(A) through (d)(4)(C),

the statute did accomplish the necessary steps of specifying the three types of trusts that would

be excluded from asset limits for Medicaid purposes and enforce the law on a national basis that

these are to be assets unavailable for eligibility purposes. Even though there are improvements

that can be made, the enforcing of the trusts as exemptions was successful. Without this statute,

trusts for disabled people would be under loose, varying interpretations, but now it is written and

must be followed. Because of this statute and the work done by disability advocates, disabled

adults can qualify for free health care programs through the state, while also having the ability to

have assets from which they can draw income. This is a step in the right direction for improving

disabled individual’s quality of life

45 (D., 2006)

22

Bibliography Special Needs Trust Document Ms.Montgomery

Bibliography(n.d.). Retrieved from The Costs Of Being Disabled:

http://www.unitedspinal.org/publications/action/2005/08/02(2008). Retrieved from Social Security Administration:

http://ww.ssa.gov/disabilty/professionals/bluebook/general-info.htm(2010). Retrieved from Profile America Facts:

http://www.census.gov/newsroom/releases/archives/facts_for_feature_special_editions/cb10-ffl3.html.

(2012). Retrieved from Benefits for People with Disabilities: http://www.ssa.gov.disability/.(2012). Retrieved from Title XIX-Grants to States For Medical Assistance:

http://www.ssa.gov/OP_Home/ssact/title19/1900.htm(2012). Retrieved from The Costs of Being Disabled:

http://www.unitedspinal.org/publications/action/2005/08/02D., F. J. (2006). Retrieved from The Elder Law Journal: http://go.galegroup.com.pearl.stkate.eduJ.D, F. (n.d.). Department of Human Services. Retrieved from http://hcopulb.dhs.state.mn.usJ.D., F. (2012). Cornell University Law School. Retrieved from

www.law.cornell.edu/uscode/text/42/1396p.Stabile, M. &. (2012). Retrieved from The Economic Costs of Childhood Disability .

Implementation of Solution

Issues Evolving from OBRA ‘93

Establishment of Pooled Trust.

Lack of Management Direction for Pooled Trusts .

Expenses of Pooled Trusts.

23

Bibliography Special Needs Trust Document Ms.Montgomery

Monies Owed the State After Death of Beneficiary.

State Interpretations of Trusts .

Figure 2

24

Appendix A Special Needs Trust Document Ms.Montgomery

Appendix AFederal Poverty Guidelines (FPG) Chart - July 1, 2012, through June 30, 2013

The figures in this chart are effective July 1, 2012, through June 30, 2013

100% FPG Income Standards

Household Size Monthly Income

1 $931

2 $1261

3 $1591

4 $1921

5 $2251

6 $2581

7 $2911

8 $3241

9 $3571

10 $3901

additional $300

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Appendix A Special Needs Trust Document Ms.Montgomery

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Household size Monthy income

Figure 3

IndexAssets Under Medicaid, 8–10definition of “disability, 2–3DEVELOPMENT OF SOLUTION, 11–13Federal Poverty Guideline, 7income limit, 6Issues Evolving from OBRA ‘93, 18–20MA-EPD, 7Medicaid, 5–6Medicaid Eligibility in Minnesota, 6–8Medical Assistance. See MedicaidOBRA ‘93, 13–14Omnibus Budget Reconciliation Act of 1993, iv,

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Pooled Trusts, v, 12, 13, 21Social Security Administration, iv, 2, 4, 5, 6, 24Social Security Disability Insurance, 4Social Security Income, 4Special Needs Trusts, 12spenddown,”, 7SSA. See Social Security AdministrationSSI. See Supplemental Security IncomeState Medical Review Board, 6Supplemental Needs, v, 12, 13, 22Supplemental Security Income, 2Trusts, i, ii, iv, v, 10, 11, 12, 13, 18, 19, 21, 24U.S. Census, 3

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