How
Should the Family of a Disabled Individual Design an Estate Plan? (Part
Two)*
Part One of this article
discussed the ways that the family of a
disabled individual could design an estate plan to include a
"supplemental
needs trust" (sometimes called a "third party" special needs trust) to
supplement
the disabled
person's entitlement benefits. But what if planning has not been done,
and funds pass to the disabled individual outright? Or what if the
individual is about to receive a personal injury settlement or award?
Or what if the person didn't need benefits but suddenly does, and has
to reduce assets?
First, a word about liens. While Connecticut has got
rid of many "liens" to recovery benefits during a person's lifetime, it
does still have the right to do so in some cases, particularly when a
personal
injury is involved,
where the State's lien includes costs of medical assistance (Medicaid)
related to that injury. However, under federal law the State
can not require further repayment of Medicaid benefits provided during
the disabled individual's lifetime, but must wait until the
individual's death to file a claim. (An exception that allowed
the state to place a lien on the home of a nursing home resident was
repealed in 2021.) Nor does the
federal government
impose a payback lien of any kind with respect to the programs it
administers (Social Security, SSI, and Medicare), with the possible
exception of disabling injuries subsequently compensated by a workers'
compensation award. So it's not that the state is going to "take
away" anyone's inheritance or personal injury award or other windfall.
The issue may only be that if retained, the assets will affect
continued eligibility.
Second, a word about income. An inheritance or
injury award that is
received while an individual is on Medicaid is considered "lump-sum
income" that may affect benefits for at least six months. The
individual may sometimes avoid this problem by going "off" Medicaid
before
payment is received. Other state and federal benefits have their own
timing rules. (By "Medicaid" I mean "Husky C" as it is
called in Conenecticut. There is no such problem with Husky D under the
Medicaid expansion, a/k/a Obamacare. Husky D also has no asset
limit so that receiving an inheritance is usually not a problem.
There is also no problem with QMB, which pays the premiums, copays and
deductibles of low-income people on Medicare.)
Once these issues have been resolved, however,
families should know
that the "OBRA '93 Trust" or "payback" trust, also known as a "first
party" special needs trust, can preserve the remaining
funds in a
trust for the individual's supplemental needs during lifetime without
further affecting Medicaid benefits.
The requirements of an OBRA '93 or "first party"
special needs trust are simple:
(1) established
for the lifetime benefit of one individual under age 65 (2) who is
either blind, or disabled as defined by the Social Security laws
(receipt of a government disability benefit should satisfy this
requirement, but is not required), (3) with pay-back of the state
Medicaid lien required at death. In addition, the trust may only be
established by parents, grandparents, courts, or "guardians" (construed
to include conservators), and since December 2016 only, by the disabled
individual directly.
In deciding whether to establish an OBRA '93 trust
with the
disabled individual's funds, the disabled beneficiary's specific needs
and the effect of the trust on all of the individual's entitlement
benefits must be taken into account. For example, establishing a trust
while the beneficiary is receiving cash assistance within two years of
application may result in a lengthy period of ineligibility from
receiving this benefit. If cash assistance will
be important to the
beneficiary, it may be foolish to preserve Medicaid eligibility while
destroying eligibility for state cash assistance, and other options
must be considered instead. "Cash assistance" is the benefit that
pays for some group homes, if licensed as "residential care homes."
In the context of personal injury lawsuits,
interaction with
available settlement options such as "structured settlement annuities"
must also be considered. Once such an annuity is established, it
usually cannot be assigned, and as a result, the OBRA '93 Trust option
is lost. However, if the court directs payment to the OBRA '93 Trust,
or if the settlement is in a lump sum, the OBRA '93 Trust option
remains open. It is important, therefore, to plan from the beginning
when damages for a personal injury are involved.
The rules affecting entitlement benefits for
disabled individuals
are complex. Attorneys who handle estate planning are not always
familiar with these rules. While the OBRA '93 Trust can provide a
significant benefit when appropriate planning was not done, or when no
planning is possible (the personal injury situation), it is essential
to obtain both good estate and tax planning and good entitlement
planning when arranging for an OBRA '93 Trust.
DISCLAIMER: THIS
INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND CREATES NO
ATTORNEY-CLIENT RELATIONSHIP. NO ENDORSEMENT IS
INTENDED BY ANY REFERENCES HEREIN. PLEASE CONSULT YOUR OWN LEGAL
AND
FINANCIAL ADVISORS BEFORE TAKING ANY ACTION.
I can
only provide general information, and will
not provide advice about a particular case without a formal engagement.
Writing
to me does not create
an attorney-client relationship.
*Revised 8-2-09; 9-4-20