In the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93), Congress created three exceptions to the general rule that an individual’s assets held in trust are counted as resources when determining eligibility for Medicaid. The three exceptions are the “special needs trust”, the disability income trust and the pooled trust. In addition, assets in special needs trusts and pooled trusts created after January 1, 2000 do not count as resources when determining eligibility for supplemental security income (“SSI”).
OBRA ‘93 defines a special needs trust as:
"A trust containing the assets of an individual under age 65 who is disabled (as described in § 1382c(a)(3) of this title) 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."
OBRA ’93 also defines the following basic requirements for a special needs trust:
1. The trust must be established for the benefit of a disabled individual under age 65.
2. The beneficiary must be "disabled" under the Social Security definition of disability.
3. The trust must be established for the benefit of the disabled individual by his or her parent, grandparent, or legal guardian, or by a court.
4. Under the terms of the trust, the State must be entitled to receive all amounts remaining in the trust upon the death of the disabled individual up to the aggregate amount of medical assistance paid on his or her behalf under the State Medicaid plan. Note: unlike Medicaid, SSI does not have a payback right upon the death of the disabled beneficiary.
5. The trust must be irrevocable.
6. The trustee must be independent.
7. The trustee must be vested with absolute discretion to make or refrain from making payments for the benefit of the disabled beneficiary—specifically, the trustee must be authorized to pay no part, any part, or all of the trust's income and principal.
A pooled trust is an alternative to a special needs trust. Assuming proper drafting and administration, the assets of a pooled trust, similar to a special needs trust, do not count as resources for purposes of determining Medicaid or SSI eligibility. Although a pooled trust must maintain a separate account for each disabled beneficiary, the accounts can be commingled for investment and management purposes.
Most of the OBRA ’93 requirements for special needs trusts also apply to pooled trusts. Unlike a special needs trust, however, a pooled trust:
1. Must be established and maintained by a non-profit association;
2. Can be established for an individual of any age;
3. Can be established by the disabled individual;
4. Can retain some or all of the trust funds which remain upon the death of th
State laws and regulations may impose additional requirements for special needs trusts and pooled trusts.
A special needs trust or pooled trust should be considered as part of any personal injury settlement involving a claimant who is eligible for Medicaid or SSI. The benefits can be substantial because Medicaid pays for physician services, hospital expenses, prescription coverage, nursing home care, in-home health care services, as well as other medical expenses. However, special needs trusts and pooled trusts also have negative consequences. These include loss of direct control of trust funds and restrictions on fund distributions. Following the disabled beneficiary’s death, a special needs trust must payback to the state as outlined above.
Whether a special needs trust or pooled trust is advisable requires an analysis of many factors including the extent of disability, the availability of government benefits, as well as the nature and amount of available personal and family assets.
Although a structured settlement annuity can be used to fund a special needs trust or pooled trust , the assignment of income from the annuity must be irrevocable or it will count as a resource for Medicaid and SSI determination. Program Operations Manual System (POMS) SI 011120.201J.1.d provides, “[a] legally assignable payment . . . that is assigned to a trust is income for SSI purposes unless the assignment is irrevocable. If the assignment is revocable, the payment is income to the individual legally entitled to receive it.”
For additional information, see "Settlement Trusts" , "Selecting a Settlement Trustee". and : “Structured Settlements and Periodic Payment Judgments”.
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