Coastal Senior is a monthly periodical covering the South Carolina and Georgia low country.  Bob Mason is its legal columnist.

Last month Legal Lines looked at the best way to leave assets to a disabled child. In that case, someone other than the disabled child is setting up a trust and funding it with assets that are not those of the disabled child. The typical situation is a parent setting up a trust under a will or perhaps immediately while the parent is alive.

What if a disabled person already has assets? Perhaps the disabled person has inherited property. Or maybe a settlement of a personal injury case has left the disabled person (temporarily) flush.

This could be a real problem. Such a person may have huge medical expenses. If a disabled individual on Medicaid comes into a “windfall”, such as a personal injury settlement or an inheritance, those assets will quickly disappear after the person has been tossed of Medicaid for having too many assets.

In many cases access to government entitlement benefits — whether Supplemental Security Income, state supplemental assistance programs, or Medicaid – is critical. How does one remain eligible for these valuable resources without first becoming impoverished?

The answer: By placing his or her property in another kind of special needs trust, a so-called “OBRA ‘93 Trust” or “payback” trust, the individual will remain eligible for many important benefits, including Medicaid. The catch is that upon the beneficiary’s death, the Medicaid benefits must be repaid, with only the balance passing to other family members.

During the individual’s lifetime, however, the difference between an OBRA ‘93 Trust and no trust can be the difference between having training and educational opportunities, a computer, music, regular outings and a vacation, and living a life of poverty or dependency.

The requirements of an OBRA ‘93 Trust are simple. It must be established for the lifetime benefit of someone under age 65 who is disabled or blind. It must also provide for pay-back of Medicaid benefits paid by the state. In addition, only parents, grandparents, courts, or “guardians”, not the disabled individual directly, may establish a pay-back trust.

When deciding to establish an OBRA ‘93 trust, the disabled beneficiary’s specific needs and the effect of the trust on the individual’s benefits must be taken into account. Also, in the context of a personal injury settlement, many common settlement options (such as annuities) may render an OBRA ’93 trust impossible. Because of this, early planning is a must when damages for a personal injury are involved.

Administration can be difficult. Also, for people with no parents, grandparents, or guardians available to establish a trust, these trusts may be unavailable. In that case, a community or pooled trust may be the answer. They work very much like pay-back trusts, but are administered by non-profit community-based trustees and are “pooled” with the trusts of other disabled beneficiaries. When the beneficiary dies, the assets either “pay-back” Medicaid or can be retained in the trust to provide for other beneficiaries in the community.

This is an exceedingly complex area of the law. I’ve tried to simplify it. Whatever you do, get good advice!